This 8% Yielder Should Be At The Top Of Every Income Investor's Shopping List

About: Blackstone Mortgage Trust, Inc. (BXMT)
by: Achilles Research

Blackstone Mortgage Trust remains a compelling income play in the CRE market.

Strong real estate platform and excellent credit portfolio quality support an investment in BXMT.

Positive interest rate sensitivity and high dividend coverage bode well for dividend growth.

An investment in BXMT throws off an 8.10 percent dividend.

Blackstone Mortgage Trust (NYSE:BXMT) is an interesting income and yield play for dividend investors. The real estate finance company has excellent credit quality stats and robust dividend coverage. Positive interest rate sensitivity and expert property management expertise support the bull case. An investment in Blackstone Mortgage Trust throws off a 8.10 percent dividend.

The last time I covered Blackstone Mortgage Trust was in June 2015 after the company said that it was acquiring a $4.4 billion loan portfolio from GE Capital (Yes, it was a 'Buy' back then). Fast forward eighteen months, and the real estate finance company still looks like a good income bet in my opinion. But this time it is largely because the REIT is primed to pull in more money from its floating-rate loan portfolio as short term interest rates get a lift.

Blackstone Mortgage Trust Real Estate Platform

Blackstone Mortgage Trust invests in loans and securities that are backed by commercial real estate assets. Typically, Blackstone Mortgage Trust looks to invest in loans with sizes ranging from $50-$500 million with an LTV of 50-80 percent.

Blackstone Mortgage Trust leverages its large real estate platform and invests in all real estate sectors from office properties to hotels.

Source: Blackstone Mortgage Trust

Blackstone Mortgage Trust's investment portfolio is diversified along multiple property types and geographic locations, insulating the Real Estate Investment Trust from downturns in local property markets.

Source: Blackstone Mortgage Trust

Excellent Credit Quality

Credit quality - expectedly - is a big issue for loan originators and investors in real estate finance companies that deal with such investment loans.

Blackstone Mortgage Trust's loan portfolio is fully performing, underscoring the high quality of its loans.

Source: Blackstone Mortgage Trust

Positive Interest Rate Sensitivity

With the Federal Reserve being on the cusp of more interest rate hikes in 2017, positive interest rate sensitivity is a desirable feature that we income investors look for in an income producing investment.

Blackstone Mortgage Trust's loan investment portfolio is 86 percent floating-rate, thereby lending positive interest rate sensitivity to an investment in this real estate finance company. Higher short term interest rates mean higher net interest income, and potentially also imply a higher dividend in the not too distant future.

Source: Blackstone Mortgage Trust

Blackstone Mortgage Trust estimates that a 1 percent increase in the US LIBOR rates translates into a $0.19/share boost to net interest income.

Dividend Payout Easily Covered By Core Earnings

Blackstone Mortgage Trust pays shareholders an 8% dividend, and the dividend has easily been covered by the REIT's core earnings.

See for yourself.

Source: Achilles Research

Blackstone Mortgage Trust's core earnings payout ratio is well below 100 percent. The lower the payout ratio, the more headroom for Blackstone to grow its dividend.

Source: Achilles Research

Not Overvalued

In order to get access to Blackstone Mortgage Trust's covered eight percent yield, investors have to pay ~10.8x Q3-16 run-rate core earnings.

Your Takeaway

Blackstone Mortgage Trust brings a lot to the table for an eight percent yielder. The real estate finance company has great dividend coverage, which could actually improve even more if the central bank continues to move along the interest rate curve in 2017. Solid credit quality and moderate LTVs are other positives. Buy for income and capital appreciation.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.