Starwood Property Trust (STWD) stock forms a bullish chart pattern

By:
on May 21, 2024
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  • Starwood Properties Trust stock has formed an inverse head and shoulders pattern.
  • There are rising concerns about Starwood's Sreit product that is seeing higher redemptions.
  • Starwood's business is doing modestly well in a difficult environment.

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Starwood Property Trust (NYSE: STWD) stock price has underperformed the broader market as concerns about its income and high interest rates continue. Its total return has dropped by 0.50% this year while the S&P 500 index has jumped by 11.30%. 

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Starwood Property Trust

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Starwood Property Trust is a leading REIT that originates, acquires, finances, and manages mortgage loans in the US, Europe, and Australia. It has four key segments, including commercial and residential lending, infrastructure lending, real estate property, and real estate investing and servicing.

Starwood Property Trust has come into the spotlight as investors focused on the happenings in the company’s SREIT, which has been shedding assets recently. A report by WSJ noted that the company has three options to maintain its liquidity. It can raise additional cash in a high-interest-rate environment, sell assets, or limit withdrawals.

While STWD and SREIT are offered by the same company, they are different entities, and their performance is not related. Sreit is different in that it raised over $13 billion from investors, which it used to buy $25 billion in real estate. The challenge is that these are highly illiquid investments and it is always difficult to convert them into cash.

The most recent financial results showed that Starwood Property Trust’s net income came in at $154.3 million while its distributable earnings was $191.6 million. Its total revenue came in at $523 million, most of them coming from interest from loans. Its total assets jumped to over $66 billion.

Starwood Property Trust yields about 9.26%, which is much higher than most REITs, US stocks, and government bonds. The 10-year government bonds are yielding less than 6%. It has a payout ratio of 89.30%, which is slightly lower than most REITs.

Starwood has paid over $7.2 billion in dividends since its inception, has a strong balance sheet, and has ample resources to fund growth. It has a capacity of $9.7 billion, with $1.5 billion in current liquidity.

Starwood Property Trust stock analysis

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starwood property trust

STWD chart by TradingView

Turning to the weekly chart, we see that the STWD share price has done well in the past few months. It has jumped from $14.20 in March 2023 to about $20. The stock has formed an inverse head and shoulders pattern and is now sitting at its neckline.

It has remained above the 50-week and 100-week Exponential Moving Averages (EMA), which formed a bullish crossover in January. Therefore, the outlook for the stock is bullish, with the next point to watch being at $25. 

Still, while Starwood Property Trust stock could rebound, I believe that popular US indices like the S&P 500 and Nasdaq 100 are better investments. For example, the fund’s total return in the past decade stood at 110.4% while the SPY and QQQ ETFs have soared by over 180% and 418%, respectively.

USA Real Estate REITs Stock Market