Could Blackstone Mortgage Trust, Inc. (NYSE:BXMT) be an attractive dividend share to own for the long haul? Investors are often drawn to a company for its dividend. Unfortunately, one common occurrence with dividend companies is for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
In this case, Blackstone Mortgage Trust likely looks attractive to dividend investors, given its 7.1% dividend yield and six-year payment history. The yield does look pretty interesting. Some simple analysis can offer a lot of insight when buying a company for its dividend, and we’ll go through these below.Explore this interactive chart for our latest analysis on Blackstone Mortgage Trust!
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. In the last year, Blackstone Mortgage Trust paid out 99% of its profit as dividends. Its payout ratio is quite high, and the dividend is not well covered by earnings. If earnings are growing or the company has a large cash balance, this might be sustainable – still, we think it is a concern.
We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Blackstone Mortgage Trust paid out 96% of its free cash flow last year, which we think is a risk if cash flows do not improve.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that Blackstone Mortgage Trust has been paying a dividend for the past six years. Its dividend has not fluctuated much that time, which we like, but we’re conscious that the company might not yet have a track record of maintaining dividends in all economic conditions. During the past six-year period, the first annual payment was US$1.08 in 2013, compared to US$2.48 last year. Dividends per share have grown at approximately 15% per year over this time.
Blackstone Mortgage Trust has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it’s also important to assess if earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. It’s good to see Blackstone Mortgage Trust has been growing its earnings per share at 25% a year over the past 5 years. The company has been growing its EPS at a very rapid rate, while paying out virtually all of its income as dividends. Generally, a company that is growing rapidly while paying out a majority of its earnings, is seeing its debt burden increase. We’d be conscious of any extra risk added by this practice.
We’d also point out that Blackstone Mortgage Trust issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental – it’s hard to grow dividends per share when new shares are regularly being created.
To summarise, shareholders should always check that Blackstone Mortgage Trust’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Blackstone Mortgage Trust paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we’d like. In summary, Blackstone Mortgage Trust has a number of shortcomings that we’d find it hard to get past. Things could change, but we think there are likely a number of more attractive alternatives out there.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 Blackstone Mortgage Trust analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.