Lument Finance Trust Inc: A $3.68 Dividend Stock That Yields 9.8%?
A High-Yield Stock You Likely Haven’t Considered
This has got to be one of the most under-the-radar high-yield stocks on the market. It goes by the name of Lument Finance Trust Inc (NYSE:LFT).
You may not have come across this company’s name in major financial media outlets, but I wrote about LFT stock in March.
Structured as a real estate investment trust (REIT), Lument Finance Trust Inc focuses on commercial real estate debt investments. The firm invests primarily in transitional floating-rate commercial mortgage loans, with an emphasis on middle-market multifamily assets.
Trading at $3.68 apiece at the time of this writing, Lument Finance stock is in penny-stock territory, which is not where most income investors typically shop. Yet, with a quarterly dividend rate of $0.09 per share, LFT stock is offering an annual yield of 9.8%.
Due to the COVID-19 pandemic, the commercial real estate sector has been severely impacted. In fact, plenty of REITs—including the biggest names—cut their dividends in 2020.
So, what do you think has happened to the payouts from this high-yield penny stock?
Nope, Lument Finance stock didn’t slash its dividends. In the first quarter of 2020, the company declared a cash dividend of $0.075 per share—the same amount it was paying before the pandemic. (Source: “Dividends and Splits,” Lument Finance Trust Inc, last accessed May 31, 2021.)
In the second quarter of 2020, when lockdowns really took a toll on the real estate sector, LFT stock’s payout remained at $0.075 per share.
Then, in the third quarter, Lument Finance declared a 13.3% dividend increase, raising its payout to $0.085 per share.
And there’s more: management further increased Lument Finance stock’s dividend to $0.09 per share in the fourth quarter of 2020.
But that’s not all. Alongside its regular dividend announcement in the fourth quarter, Lument Finance declared a one-time special cash dividend of $0.04 per share. Both the regular and the special dividends for the fourth quarter were paid on January 15, 2021.
The big question, of course, is whether the company could afford these payouts in a year that was extremely challenging for REITs.
Well, Lument Finance generated distributable earnings of $0.39 per share in full-year 2020. Its declared dividends—including the special payout—totaled $0.37 per share for the year. Therefore, the REIT managed to cover its payout. (Source: “Q4 2020 Earnings Supplemental,” Lument Finance Trust Inc, last accessed May 31, 2021.)
Fast-forward to 2021 and you’ll see that Lument Finance generated distributable earnings of $0.11 per share in the first quarter. The amount was in excess of the $0.09 per share dividend it declared during the quarter. (Source: “Q1 2021 Earnings Supplemental,” Lument Finance Trust Inc, last accessed May 31, 2021.)
One of the reasons for the company’s solid performance was its focus on the multifamily sector. The essential nature of housing means that, during this extraordinary time, multifamily asset owners probably had an easier time than shopping-center landlords. As of March 31, 88% of Lument’s portfolio were multifamily properties. The company had no hospitality assets, and it had limited exposure to the office and retail sectors.
Moreover, Lument Finance Trust Inc has had no delinquencies or defaults during the COVID-19 era. (Source: Ibid.)
That said, in the short term, the REIT’s financials may see some headwinds.
In its last earnings conference call, management talked about Lument Finance’s recently closed preferred equity offering. The company’s chief financial officer, James Briggs, said, “As we work to deploy the proceeds from this offering and the incremental term loan of $7.5 million we expect to fund this quarter, we may see short-term declines in our net income and distributable earnings to common shareholders over the coming months.” (Source: “Lument Finance Trust, Inc. (LFT) CEO James Flynn on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, May 11, 2021.)
However, Briggs also mentioned that the decline is expected to be “transitory in nature,” and he said the company doesn’t see any negative impact on its medium- to long-term earnings outlook.
Bottom Line on Lument Finance Trust Inc
At the time of this writing, Lument Finance Trust Inc is yet to declare its second-quarter dividend. Given the short-term drag mentioned above, it would probably be wise to wait for the determination of the company’s next dividend amount (which should be announced in June) before making any investment decision.
For now, though, LFT stock deserves a spot on the watch list of yield-seeking investors.