Lument Finance Trust Inc: Bullish 12%-Yielding REIT Crushing S&P 500
March 13, 2025
Lument Finance Trust Announces Special Dividend
For the most part, real estate investment trusts (REITs) do better when interest rates are lower.
Why?
Well, higher interest rates make it more expensive to borrow, cutting into margins. This results in lower profits and free cash flow (FCF); the latter is important because that’s what’s used to pay for dividends.
Mortgage REITs (mREITs) like Lument Finance Trust Inc (NYSE:LFT) are especially susceptible to higher interest rates.
As their name suggests, mREITs invest in mortgages instead of real estate. They provide financing for income-generating real estate by purchasing or originating mortgages and mortgage-backed securities, earning income from the interest on these investments.
When interest rates are near zero, it can mean less money is coming in and lower profits. However, higher interest rates are great for mREITs in general. And they’re a big bonus for mREITs with a lot of floating rate loans.
Even in the lower-interest-rate environment, the outlook for mREITs remains excellent since rates are still expected to be above pre-pandemic levels for a number of years. On top of that, the environment of slightly lower interest rates means that mREITs can borrow capital at rates that are far lower than what the mortgages are actually paying.
And that’s great news for mREITs like Lument Finance Trust Inc. The New-York-City-headquartered company is focused on investing in, financing, and managing a portfolio of floating-rate commercial real estate (CRE) loans.
The mREIT’s current portfolio of floating-rate CRE loans has a carrying value of $1.2 billion. Of that, 93.2% is invested in loans collateralized by multifamily assets. Lument’s portfolio also includes senior housing and care finance and self-storage. (Source: “Q3 2024 Earnings Supplemental,” Lument Finance Trust Inc, November 12, 2024.)
Lument Finance primarily invests in transitional, floating rate CRE mortgage loans and other CRE-related investments, including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed-rate loans, construction loans, and other CRE debt instruments.
Q3 Earnings Beat
Lument Finance reported third-quarter net income of $5.1 million, or $0.10 per share, down slightly from $5.17 million, or $0.10 per share, in the same prior-year period. Wall Street was looking for earnings of $0.08 per share. (Source: “Form 10-Q,” U.S. Securities and Exchange Commission, November 12, 2024.)
The mREIT also reported distributable earnings of $5.5 million, or $0.10 per share, up six percent from $5.2 million, or $0.10 per share, in the third quarter of 2023.
During the third quarter, Lument experienced $45.4 million in loan fundings and $51.4 million in loan payoffs.
It ended the quarter with cash and equivalents of $45.6 million and a book value per share of $3.50. For the sake of reference, Lument Finance stock is currently trading at $2.71 per share.
Looking ahead, analysts expect the mREIT’s earnings to increase from $0.26 per share in 2023 to $0.43 per share in 2024 and to slip to $0.40 per share 2025. (Source: “Lument Finance Trust, Inc. (LFT)” Yahoo! Finance, last accessed March 5, 2025.)
Q4 Special Dividend of $0.09/Share
As a leading mREIT, Lument Finance makes a lot of money. And, thanks to a loophole, it has to pass on at least 90% of its taxable income to investors in the form of a big dividend.
In December, it declared a quarterly cash dividend of $0.08 per share and a special dividend of $0.09 per share. The mREIT currently pays an annual dividend of $0.32 per share for a forward dividend yield of 11.72%. That payout is not out of the norm, as the five-year average dividend yield is 11.38%. (Source: “Lument Finance Trust, Inc. Declares Quarterly Cash Dividends for its Common and Preferred Stock and Announces Special Cash Dividend Distribution,” Lument Finance Trust Inc, December 12, 2024.)
LFT Stock Up 37.5% Year Over Year
More often than not, an ultra-high-yield dividend is tied to a stock that is depressed. That’s because share price and dividend yield have an inverse relationship with each other. Again, with a five-year dividend yield average of 11.38%, this isn’t the case with Lument Finance.
In fact, LFT stock is having an incredible year. Currently trading hands at $2.71, the stock is up:
- 6.2% year to date
- 8.5% over the last three months
- 19.3% over the last six months
- 37.5% over the last year
That’s far better on every level than what the S&P 500 is doing. And Wall Street expects that winning streak to continue. With analysts providing a 12-month share price target range of $3.00 to $3.25, this points to potential upside of 10% to 20%.
Chart courtesy of StockCharts.com
The Lowdown on Lument Finance Trust Inc
Lument Finance Trust Inc is an mREIT focused on transitional floating rate commercial mortgage loans with an emphasis on middle-market, multi-family assets. It reported a third-quarter earnings beat, and analysts have provided solid earnings guidance for 2024 and 2025.
This should result in Lument Finance continuing to provide buy-and-hold investors with a reliable, high-yield distribution, strong stock market gains, and perhaps another special dividend.
That’s good news for the 57 institutions that hold a 45.59% stake in Lument Finance Trust Inc. Some of the top holders include AXA, S.A., The Vanguard Group, Geode Capital Management, LLC, and BlackRock.
