Buy Starwood Waypoint Residential Trust
This is a 30 Day Dividends buy recommendation to open a position in Starwood Waypoint Residential Trust (NYSE:SWAY). SWAY is a REIT that owns single family rental properties. SWAY was spun off by Starwood Property Trust (NYSE:STWD) with a January 2014 IPO.
The potential gain in SWAY derives from the strong possibility of a large dividend increase announcement in early August. The REIT declared its first dividend of $0.14 per share on August 11, 2014. Second quarter earnings came out two days later and the financials reported $0.08 of core FFO per share. Over the next three quarters, the FFO per share grew dramatically:
11/12/14: core FFO: $0.16
2/27/15: core FFO: $0.44
5/12/15: core FFO: $0.59
The dividend rate has remained at $0.14 now for four consecutive quarters. These are the four full quarters since the IPO. The amount of FFO generated last quarter shows that SWAY could triple or even quadruple its dividend rate, especially if cash flow has continued to increase in the 2015 second quarter.
The SWAY share price has been in a $24 to $26.50 trading range for the year to date. The current yield is 2.25%. Since this is a new company in new REIT sector –a sector paying little in dividends outside of SWAY– I am not sure how much of a price increase to expect if/when a large dividend increase is announced. I am setting an initial 10% target profit, but that may adjust after the dividend and earnings announcement.
SWAY is a REIT and uses Forms 1099 for tax reporting. SWAY will be classified as a longer term position on the 30 Day Dividends recommendations list. This trade may go for a month, or through the third quarter earnings release.
Recommendation: Buy SWAY up to $25.50 with a target sell price of $28.00.