STWD Stock: Earn a Dividend Yield of 8.72%
August 4, 2017
High Dividend Yield from a Unique Business
Starwood Property Trust, Inc. (NYSE:STWD) is today’s topic, a real estate investment trust engaged in real estate financing. The company offers a an annual dividend yield of 8.72%–4.5 times higher than the average dividend from today’s markets. This high income is possible due to Starwood being such a solid business.
Within the real estate segment of the market are many different sub-categories that investments could be made into. Examples include property management, debt- or equity-based deals, and construction companies. Normally, a company will focus on one area of the market, but with Starwood Property Trust, the business is more spread out, which adds to the appeal as an investment.
The business is divided into three segments. The Lending division, the largest contributor to revenue, starts, acquires, and finances commercial mortgages, preferred equities, and residential backed securities. The Investing and Servicing segment is engaged in managing and improving problem assets and investing in both investment-grade and non-investment grade commercial mortgage-backed securities. Lastly, the Property division is concerned with acquiring and managing equity interests in stable commercial real estate projections.
But the diversification doesn’t end there. For example, the Lending division works alongside many major banks and brokers, whose contributions help make the dividend yield so high. Partners include Invesco Ltd. (NYSE:IVZ), Ashford Hospitality Trust, Inc. (NYSE:AHT), and Chatham Lodging Trust (NYSE:CLDT).
Getting Consistent Growing Dividends
STWD’s current dividend $0.48 per share, paid out quarterly. It has seen growth of 4,700% since 2009.
The growth can be attributed to a few things. First, many parts of the business generate a steady and predictable revenue stream. Revenue is generated via various contracts, which are laid out in full before any transfer of money. For instance, a lending deal would first establish the length of the loan, the interest rate charged, and the penalties for late payments before anyone put pen to paper.
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The company also hasn’t been shy about rewarding shareholders, hence the history of special dividends. The last one paid out in addition to the regular dividend was in 2015 for $5.768 per share; this was 1,100% more than the regular quarterly dividend at the time.
Both the growing regular dividend and the special dividend signal to the markets two things: respect for shareholders and very strong internal financial willpower. For the past five years, the company’s reported revenue has more than doubled, which, aside from the obvious financial benefits, also provides Starwood with flexibility. Just keep in mind that financial discipline from a company means a need for patience from the investor to earn maximum returns. (Source: “Starwood Property Trust Inc.,” MarketWatch, last accessed August 2, 2017.)
Final Thoughts About Starwood Property Trust
Real estate lending is a riskier business than buying and holding a property to collect rental checks. However, this is why Starwood Property Trust is being diversified–to lower the business and investment risks.
Members of senior management having their own personal wealth in the company is a positive sign, given they now have a horse in the race too. This alignment in investment goals only bodes well for holders of STWD stock.
