Lument Finance Trust Stock: 12.9%-Yielding Mortgage REIT Hikes Payout 14%
August 13, 2024
LFT Stock Hits Record High
Today’s pick in the spotlight is Lument Finance Trust stock.
In general, real estate investment trusts (REITs) tend not to do well in a high-interest-rate environment. That’s because higher interest rates drive up the cost of borrowing and cut into margins, which leads to reduced profits and free cash flow (FCF). And REITs borrow a lot of money to grow their portfolios.
The Federal Reserve is expected to announce its first interest rate cut for this cycle in September, which will provide some relief for capital-intensive REITs. That said, even after rates have come down, they are expected to remain above pre-2020-health-crisis levels.
Keep in mind that not all REITs struggle with high interest rates. Mortgage REITS (mREITS) tend to do well in a high-interest-rate environment. mREITS provide financing for income-producing real estate by purchasing or origination mortgages and mortgage-backed securities (MBS), earning income from the interest.
One mREIT that has been doing exceptionally well over the last year and a half is Lument Finance Trust Inc (NYSE:LFT).
Lument Finance is an mREIT that is focused on investing in, financing, and managing a portfolio of floating-rate commercial real estate (CRE) loans, including multi-family (93.6%) and senior housing and care finance (5.8%). A small portion, 0.6%, of its property portfolio is made up of self storage. (Source: “May 2024 Investor Presentation,” Lument Finance Trust Inc, last accessed August 6, 2024.)
Lument’s $51.0-billion servicing portfolio makes it one of the top 15 multifamily lenders in the country, a top 5 Fannie Mae small loan lender, and top 10 Freddie Mac small loan lender. Over the last decade, it has closed over 800 direct loans totaling over $7.7 billion.
The mREIT 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.
Solid First-Quarter Results
For the first quarter ended March 31, 2024, Lument Finance Trust announced that revenue increased 33% year over year to $11.3 million. (Source: “Form 10-Q,” U.S. Securities and Exchange Commission, May 5, 2024.)
The company’s net income increased 20% to $5.8 million, or $0.11 per share. That beat Wall Street estimates by $0.04. Distributable earnings were $7.6 million, or $0.15 per share.
It ended the quarter with cash and equivalents of $64.5 million and a book value per share of $3.50. For the sake of reference, Lument Finance Trust stock is currently trading at $2.49 per share.
Looking ahead, analysts expect Lument Finance’s earnings to increase from $0.26 per share in 2023 to $0.45 per share in 2024 and 2025. (Source: “Lument Finance Trust, Inc. (LFT)” Yahoo! Finance, last accessed August 6, 2024.)
Hikes Quarterly Payout 14%
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 June, it declared a second quarter cash dividend of $0.08 per share, or $0.32 per share on an annual basis, for a current yield of 12.9%. The $0.08 payout represents a 14% increase over the first quarter 2024 dividend of $0.07 per share. (Source: “Lument Finance Trust, Inc. Announces Quarterly Common Stock Dividend Increase,” Lument Finance Trust, Inc., June 13, 2024.)
Lument Finance Trust Stock Recently Hit New Record High
Typically, an ultra-high-yield dividend is attached to a depressed share price. That isn’t the case with Lument Finance Trust stock. On July 29, LFT hit a new record intraday high of $2.74 per share.
With the recent broad based stock market melt down, Lument Finance Trust stock has traded a little lower, but at $2.49 per share, it is still up 13.5% year to date and 32% year over year. Big gains, but LFT stock is expected to hit fresh highs over the coming quarters, with Wall Street analysts providing a 12-month share price target range of $2.69 to $3.00. This points to potential upside of eight percent to 20.5%.
Chart courtesy of StockCharts.com
The Lowdown on Lument Finance Trust Stock
Lument Finance Trust Inc is an mREIT focused on transitional floating rate commercial mortgage loans with an emphasis on middle-market, multi-family assets. The company reported a first-quarter earnings beat, and analysts have provided solid earnings guidance for 2024.
Thanks to the mREIT’s strong cash flow, Lument Finance Trust stock is able to provide investors with a reliable, and for now, growing, ultra-high-yield dividend.
