Starwood Property Trust (NYSE:STWD) offers income investors a lot of the things they like to see in a top-shelf income vehicle: Resilient core earnings, excess dividend coverage, upside related to an increase in short-term interest rates, and a high dividend yield. On the other hand, Starwood Property Trust's shares are far from being a bargain, selling for a considerable premium to the last reported book value. Should investors be concerned about Starwood Property Trust's valuation, and maybe even wait for a drop before buying?
Income investors often make the mistake to pass on a high-quality income vehicle because they are concerned about its high valuation. While valuation obviously matters, it is also true that high-quality income vehicles with robust core earnings and stable book values/Net Asset Values almost always sell for sizable premiums to accounting book value…And that's simply because income investors have already woken up to their value propositions.
