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High-yielding dividend stocks can be an incredible boost to an investor's portfolio, but some are also subject to a fair amount of volatility. Blackstone Mortgage Trust (NYSE:BMXT) reported earnings last month and announced that it cut its dividend by 24% from $0.62 quarterly to $0.47. This took the dividend yield from 14.11% to 9.58%. Many investors may wonder what happened and if this is a bad sign for the stock’s future.
Blackstone Mortgage Trust is a mortgage real estate investment trust (REIT). It operates as a real estate finance company that originates senior loans collateralized by commercial real estate in North America, Europe, and Australia. It is a subsidiary of Blackstone. The company primarily focuses on originating and acquiring senior floating-rate mortgage loans secured by high-quality commercial real estate. These loans are typically used to acquire, refinance, and recapitalize properties. The loan portfolio includes office buildings, hotels, industrial facilities, retail centers, and multifamily residential properties. Dividends are generated from interest income.
Mortgage REITs, including Blackstone Mortgage Trust, can exhibit significant volatility due to various factors inherent in their business model and the broader financial markets. When interest rates rise, the value of the mortgage-backed securities (MBS) they hold typically falls, decreasing their asset values. Blackstone Mortgage Trust is also highly exposed to the office sector. Its top three sectors are multifamily (27%), office (26%), and hospitality (18%), and 62% of its exposure is to the U.S. market.
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On the earnings call, CEO Katie Keenan said that the company has started to see the pillars of recovery taking shape. At the quarter’s end, the portfolio was 90% performing as the company works through some resolutions of distressed loans that have impacted earnings. Keenan sees this as a necessary transition point to move into the next part of the cycle. The company reported $700 million of office repayments year to date. While most of its office loans are still performing, the company did report that approximately $1.5 billion of its office loan portfolio is impaired. During the year’s first half, the company resolved $385 million of nonperforming loans across five transactions, including selling an office building in Brooklyn, New York.
The company’s nonperformance is mainly in the office sector; the multifamily and industrial portfolios are 99% performing. The company also seems to be adjusting its business model with the times. It announced a new multifamily lending partnership with M&T Realty Capital Corporation in June.
Investors relying on that dividend will want to know if this is temporary. Blackstone Mortgage Trust has kept its dividend steady at $0.62 since 2015, so the news of a dividend cut seems like a serious signal. Keenan said the new rate "reflects a sustainable level relative to long-term earnings power." Much will depend on how it resolves the remaining distressed loans in its office portfolio, but it seems likely that, at least for the short term, the revised dividend level reflects a new target for the company. It is a challenging time to refinance or sell office property and much of the company's success will depend on how it resolves the weakness in its portfolio. On the positive side, the company has liquidity of $1.6 billion and the cachet of the Blackstone name. The next several quarters should provide insight into whether the office problem is improving.
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This article This High-Yielding REIT Slashed Its Dividend By 24%. Is It Still A Buy? originally appeared on Benzinga.com