It’s a challenging market for commercial real estate, but Walker & Dunlop‘s (WD 4.38%) most recent quarter provided a reminder to investors about the company’s ability to manage through the cycle.
Shares of Walker & Dunlop climbed as much as 11.4% on Thursday, and were up 7.5% as of 10:30 a.m. ET, after the company easily exceeded fourth-quarter earnings expectations and raised its cash payout to investors.
A diverse business pays dividends
Walker & Dunlop is one of the largest providers of capital to the commercial real estate industry, with a big focus on multifamily housing projects. The commercial real estate industry has been in the headlines for all the wrong reasons lately, and multifamily in particular has come under scrutiny due to problems at New York Community Bancorp.
In this sort of a market, Walker & Dunlop’s primary job is to reassure investors. Fourth-quarter results did the trick, with the company reporting earnings of $1.42 per share on revenue of $274.3 million. Analysts had expected $0.80 per share in earnings on sales of $277 million.
Total transaction volume declined 17% in the quarter and dropped 48% for the full year, but Walker & Dunlop’s servicing business — i.e., collecting payments on loans — grew, helping to steady earnings. Full-year revenue was down 16% but adjusted EBITDA fell by only 8%.
Walker & Dunlop also signaled its confidence about future quarters by announcing a 3% dividend boost to $0.65 per share. On an annualized basis, that’s a 2.6% dividend yield at current prices.
Is Walker & Dunlop a buy after a strong earnings report?
Don’t let this earnings release fool you: The commercial real estate market still has plenty of challenges ahead, and Walker & Dunlop will struggle to boost financing and sales volumes until conditions improve and rates settle. With all the uncertainty up ahead, the next few quarters could be choppy.
But the Q4 results do demonstrate the strength of Walker & Dunlop’s business, even when times are tough. For long-term-focused investors able to see past the current cycle, this is a company worthy of your attention.
Lou Whiteman has positions in Walker & Dunlop. The Motley Fool has positions in and recommends Walker & Dunlop. The Motley Fool has a disclosure policy.
