Image credit: Coolcaesar at the English Wikipedia / CC BY-SA
Starwood Property Trust Inc, an American real estate investment trust (REIT) is required to distribute at least 90% of its taxable income as dividends to shareholders. But instead of managing residential mortgages, Starwood originates, acquires, and manages commercial mortgage loans and commercial mortgage-backed securities in the United States and Europe.
The company operates a commercial lending segment, infrastructure lending segment, property segment, and investing and servicing segment. The former acquires and finances mortgages with primary lien positions.
The collateral for these mortgages is mainly office and hospitality properties in Western and Northeastern America. Starwood’s investing and servicing unit primarily generates revenue from the acquisition and sale of commercial mortgage-backed securities.
And right now, the business is doing so well that STWD can afford to pay a massive 12.5% dividend for the foreseeable future. By my estimations, it could even rise in the next quarter or two.
Like the previous two stocks mentioned, Starwood has also never missed a dividend payment since going public in 2009. In fact, the company has increased its dividend 4,700% – from $0.01 in 2009 to $0.48 today.
Shares of STWD are currently trading for $15.40. And I think they’re significantly undervalued. My expectation is for shares to run to $30-$33 over the next 6-18 months. That means a potential return for investors of 95%-114%.
