24% Discount to Book Value and a Double-Digit Dividend
A high dividend yield is often a warning sign in the stock market. When a company offers a double-digit annual percentage, it usually means the market doesn't believe the payout is sustainable and is waiting for a cut. Yet this company offers such a yield and still claims its dividend is safe. That's a combination that deserves a closer look, because it's either a trap or an opportunity the market is overlooking out of caution.
Key points
The stock trades at just 0.76 times its book value, meaning it's at nearly a quarter discount to what the company actually owns.
It pays a dividend of around 11% annually, and in the latest quarter, earnings covered it with room to spare (1.04 times).
Not long ago, the market punished it for office exposure, but the company has reduced that to under 5% of the portfolio, and 100% of loans are performing.
Behind it stands one of the world's largest alternative asset managers, overseeing $303 billion in assets.
The company is aggressively buying back its own shares deep below book value, paradoxically increasing that value per share.
The company lends money on commercial real estate, meaning it belongs to a sector that has been through hell in recent years. Office buildings emptied after the pandemic, interest rates soared, and many lenders in this sector suffered heavy losses, slashed dividends, and saw their shares plunge far below the value of the assets they hold. As a result, the market has pigeonholed the entire sector as risky and cheap. But it's precisely in such pigeonholed corners of the market that you occasionally find companies that are faring much better than their reputation.
And that's exactly the core of this thesis. The company claims, and the numbers support it, that it has pulled back from the riskiest parts of the market, that all its loans are performing, and that it has one of the most powerful players in the entire financial world behind it. Yet its stock trades at a significant discount to the value of its assets, as if the market is pricing in problems no one can see yet.
The question for an investor, therefore, isn't whether the yield is high. That's obvious. It's whether that yield is truly as safe as the company claims, and whether that discount represents a real opportunity or justified distrust. The answer lies in the details of the portfolio, the quality of the dividend, and what would have to go wrong for the thesis to fail.
Finish the whole article on STWD
And you also unlock fair value and more tools
Black membership: analyses, screener, newsletters and unlimited StockBot.