Dividend stocks are extra-juicy buys when the market is down, because dividend yields increase when share prices drop. Now that the stock market is rearing toward recovery -- up 10% in the past month -- several discounted dividend stocks are rebounding.
Some experts believe a bear market could still be on the horizon, but eventually, a bull market is coming. That's why investors looking for ultrahigh dividend yields should consider buying Blackstone Mortgage Trust (BXMT -4.60%), Simon Property Group (SPG -0.68%), and AFC Gamma (AFCG -0.09%) before the next bull market.
BXMT Dividend Yield data by YCharts.
The mortgage arm of the largest investment firm in the world
Blackstone Mortgage Trust is a mortgage real estate investment trust (mREIT). The company, which is a part of Blackstone, one of the largest investment firms in the world, originates and invests in first-lien commercial mortgages.
Lending can be a tricky business, particularly in environments with high inflation and rising interest rates. mREITs like Blackstone are highly leveraged by nature. mREITs issue debt at short-term rates, then uses that debt to originate long-term mortgages and loans. Since longer-term debt yields higher rates than short-term debt, the company is able to gnereate profit from the spread between those two rates. So when interest rates rise, it increases an mREIT's cost of borrowing, which in turn affects its earnings.
Thankfully, Blackstone Mortgage Trust benefits from having primarily adjustable-rate loans on its underlying commercial properties. So, instead of hurting its earnings, these loans have adjusted rates higher and therefore have helped boost returns. Each increase of 100 basis points generates around $0.15 of earnings per share annually.
Its portfolio also boasts a low loan-to-value (LTV) ratio of 67%, meaning if the market does turn or if borrowers stop paying due to a recession, there's still a notable amount of equity for the company to rely on.
It's actively growing its portfolio despite the challenges in the marketplace, spending $2.8 billion in the second quarter of 2022. It also has a fantastic balance sheet for continued growth. As of Q2 2022, it had $1.5 billion in liquidity and only $200 million in debt maturities until 2026. Its dividend yield is currently 8.7%.
The comeback kid
Malls weren't in good shape to begin with before the COVID-19 pandemic, but a year of lockdowns and two years of diminished demand absolutely wrecked the industry. That was terrible for Simon Property Group, the largest owner and operator of malls and premium outlets in the world. Its beaten-down share price recovered from the March 2020 crash in late 2021, only to regain its losses as concerns loomed over recession effects on retail spending.
Based on the company's latest earnings, the concern may be unwarranted. Quarter over quarter, its occupancy levels are improving, with 93.9% of its portfolio being occupied in Q2 2022. Its base minimum rent per square foot just recently surpassed 2019 levels. Its comparable funds from operations (FFO) and its net operating income (NOI), two important metrics for a REIT's profitability, rose by 6.3% and 6.7% respectively.
The REIT was so confident about its latest performance that it raised its full-year guidance and bumped its dividend by nearly 3% from last quarter. Today its yield is roughly 7%.
There are certainly hardships for the mall industry to overcome in the future, but Simon's definitely in a strong position to overcome the hurdles and pivot as needed to keep growing. It has two new developments underway, in Paris and Tokyo, and is actively redeveloping existing properties to include more mixed-use facilities.
One of the highest dividends around
AFC Gamma isn't your typical mREIT. It doesn't originate or invest in real estate mortgages; instead, it loans money to the fast-growing but cash-strapped cannabis industry. Since cannabis is still illegal on a federal level, cannabis growers don't have access to traditional loans which could help them buy real estate, make business improvements, or expand. This is where AFC Gamma comes in.
This young but fast-growing company is clearly filling a void in the marijuana industry, since it completed $483.2 million in loan commitments through Aug. 1. An astounding 100% of its loans are paying, and its portfolio's average yield to maturity is 18%, an incredible number for a mREIT. Its fantastic earnings have prompted it to raise its dividend by 47% since last year, so the dividend yield is now roughly 10%.
Like other high-growth stocks, this REIT isn't without risks. Marijuana legalization at the federal level would open doors to alternative financing and result in diminished demand for its products. It also runs the risk of future defaults, as not every company in the cannabis industry will make it. But for the time being, AFC Gamma looks like an incredibly undervalued buy that offers growth opportunities and ultra-high-yielding dividends.
