Blackstone Mortgage Trust (BXMT) looks like a good dividend company to invest in. It has an exciting dividend yield of almost 10%, trades below book value, and is part of Blackstone, the biggest private equity company in the world.
The BXMT stock price was trading at $18.55 on Friday, the same level it has been at in the past few weeks. It remains 35% above its lowest point in 2023, giving it a market cap of $3.31 billion, much lower than its $19.3 billion loan portfolio.
What is Blackstone Mortgage?
Blackstone Mortgage is a leading company that dividend-focused investors love for its long track record of dividend growth. It is a real estate finance company that provides senior loans collateralized by commercial real estate in the US, Europe, and other countries.
The idea behind BXMT is relatively simple. It provides loans to developers and real estate companies and uses the same property as collateral. This is an important business since its manager is Blackstone, the biggest real estate investor in the world.
Companies like BXMT have become more popular in the real estate industry after the Global Financial Crisis (GFC) of 2008/9 since banks have lowered their exposure because of strict regulations.
BXMT’s portfolio is made up of loans across most areas in the real estate sector. Most of these loans are in the multifamily segment, followed by offices, hospitality, industrial, and non-US office.
High interest rates
BXMT has also benefited recently from the high interest rates in the United States and its other markets. The Federal Reserve pushed interest rates to between 5.25% and 5.50% to deal with the post-Covid-19 inflation. Similarly, the European Central Bank (ECB) and the Reserve Bank of Australia (RBA) all hiked rates.
BXMT often benefits when interest rates are higher because most of its portfolio is on floating interest rates.
However, higher rates can be affected by higher default rates as maturities near. In the past few years, this has been talk about the wall of maturities as over $1 trillion of loans tied to the commercial real estate (CRE) sector mature.
The fear explains why BXMT stock remains about 24% below its 2021 highs. However, there is a light at the end of the tunnel as the CRE industry has avoided a 2008/9 implosion that some analysts were expecting.
There are also signs that more companies are forcing their staff to go back to the office, which is a good thing.
Read more: Blackstone Mortgage (BXMT) stock could crash by 21% soon
Blackstone Mortgage earnings
The most recent catalyst for the BXMT stock price was its earnings for the three months to September.
These results were fairly weaker than what it reported last year. Its interest and related income dropped to $430 million from $519 million a year earlier. Its nine-month interest income also dropped from $1.5 billion to $1.3 billion.
Blackstone Mortgage also reported a loss during the quarter as its net loss came in at $55 million from a profit of $30.5 million.
This loss was mostly because of credit quality, which led to higher loan losses. Worse, the management expects the losses to continue, as it added $132.5 million to its current expected credit loss (CECL). Its total CECL reserve this year has moved to over $1 billion.
These results explain why BXMT trades at a big discount to its book value. It has a price-to-book ratio of 0.8, while Starwood Property Trust (STWD), which has a better credit quality has a multiple of 1.01x. Ladder Capital Corp has a multiple of 0.95.
BXMT stock return challenges
The other thing to consider when investing in BXMT is that you should mostly ignore the 10% dividend yield and consider the total return. Ideally, in most cases, you should consider investing in a company that, at least, beats the S&P 500 index.
Blackstone Mortgage Trust has a poor record of doing that. Data shows that its total return this year was minus 4.4%. In contrast, the VOO ETF returned about 23%. As shown above, the company’s total return in the last five years was minus 18.8% compared to VOO’s 107%.
This is notable since the S&P 500 index pays a minimal dividend because of its historical performance.
A point can also be made on investing in government bonds instead of BXMT for now since the ten-year is yielding over 4%. This means that it is doing better than BXMT.
BXMT chart by TradingView
On the positive side, the BXMT stock has formed a triangle pattern on the weekly chart, meaning that it could stage a strong comeback in the coming months. If this happens, the stock will climb from $18.7 to $24.5, its highest level in 2022, which is about 32% above the current level.
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