The Best “Buy the Dip” Stock

Dividend Investing
by Tim Plaehn
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The recent banking “crisis” pulled down share prices of many income stocks, not just banks. Broad-based stock selloffs provide excellent opportunities for investors who understand the difference between quality stocks available “on sale” and the companies that are actually at risk.

When the share price drops, there is one stock of which I will always buy a few shares.

It’s this one…

Starwood Property Trust (STWD) is a commercial finance REIT. Billionaire Barry Sternlicht is the chairman and CEO of STWD and the privately owned Starwood Capital Group.

Initially, Starwood Property Trust focused 100% on commercial mortgage loans. As of the end of 2022, the company had assets of $28.3 billion, distributed across several investment categories.

Commercial lending accounts for $16.8 billion. Here is the portfolio breakdown:

Note the 60% loan-to-value ratio, and the fact that office mortgages make up just 23% of the portfolio.

Residential loans total $3.2 billion. Energy midstream infrastructure lending accounts for $2.4 billion.

Starwood Property owns $2.65 billion of property. These holdings include 15,000 apartments valued at $1.76 billion, $768 million of medical office properties, and $344 million of master lease properties.

The company owns and operates LNR Special Servicer, the named servicer on $109 billion of commercial mortgage-backed security (CMBS) loans. A special servicer gets involved when the borrower defaults on the loan.

For 2022, STWD reported GAAP earnings of $2.74 per share and finished the year with an undepreciated book value of $21.70 per share.

Starwood Property Trust has paid a $0.48 per share quarterly dividend since the first quarter of 2014. STWD is not a dividend growth stock, but I also know that Sternlicht is committed to supporting the current rate.

Typically, STWD is priced to yield 7.5% to 8%, or around $24 per share. During market downturns or panics like the recent bank fiasco, if STWD drops below $19.00, pushing the yield above 10%, I recommend loading up on shares. Currently, STWD trades for around $17.00, giving an 11% plus yield.

Buying STWD at current levels locks you into an 11% annual return for as long as you want to own the shares. STWD has been on my Dividend Hunter recommendations list since the first issue in June 2014. It is an income stock that provides lasting, high-yield income.

Author: Tim PlaehnTim is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory focused on creating a high-yield income stream and it's companion service The Dividend Hunter Insiders, Weekly Income Accelerator, a covered call trading service, and for investors looking for long-term total returns from their income investments using stocks with ever-growing dividend payments, he offers Monthly Dividend Multiplier. He co-edits POWR Income with Jay Soloff. Prior to his work with Investors Alley, Tim was a stock broker, a Certified Financial Planner, and F-16 Fighter pilot and instructor with the United States Air Force. During his time in the service he was stationed at various military locations in the U.S., Europe, and Asia. Tim graduated from the United States Air Force Academy with a degree in mathematics. In his free time he tours the United States parks, campgrounds, and wilderness areas in his travel trailer.
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