Most companies take all of their profits early on to reinvest in their businesses in order to maximize early growth rates. Yet once a company reaches a certain point, rewarding shareholders with dividends becomes an important sign of reliability and steadiness. Walker & Dunlop (NYSE: WD) hasn't paid dividends in the past, preferring to take maximum advantage of the real estate market by putting available capital into smart acquisitions. But all that's changing now.
Coming into Wednesday's fourth-quarter financial report, Walker & Dunlop investors expected to see some ongoing challenges in producing substantial growth in key metrics, but they were still optimistic about the real estate specialist's future. Walker & Dunlop's results were encouraging, and the news that it would start paying a dividend points to a new beginning for the company. Let's look more closely at Walker & Dunlop and what was behind its dividend decision.
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Walker & Dunlop fires on all cylinders
Walker & Dunlop's fourth-quarter results continued to show just how lucrative commercial real estate is right now. Total revenue climbed 16% to $207.2 million, again doubling the expected growth rate that most of those following the stock were looking to see. Net income saw big gains from tax reform, but even accounting for those gains, adjusted net income climbed 11% to $40.7 million. That produced adjusted earnings of $1.27 per share, which easily topped the consensus forecast among investors for $1.02 per share.
Tax reform played a key positive role for Walker & Dunlop. The company saw a $58.3 million decrease in net deferred tax liabilities as a result of the lower corporate tax rate on profits. That tailwind should keep helping Walker & Dunlop indefinitely into the future.
Fundamentally, though, Walker & Dunlop really showed its strength. Total transaction volume climbed 33% to $8.31 billion, with brokered loans and Ginnie Mae loans from the Department of Housing and Urban Development seeing the most substantial growth in percentage terms, thanks in part to increased construction lending. Gains from government sponsored loan-specialist enterprises also added to transaction volume, and a 45% rise in investment sales provided an additional boost of its own. Walker & Dunlop kept bulking up its staff, adding 30 bankers and brokers to hit 143 during the period.
Growth at Walker & Dunlop's mortgage servicing portfolio was also impressive, with assets rising 18% to $74.49 billion. Here, Fannie Mae and Freddie Mac servicing arrangements were the key growth drivers, with brokered loans and Ginnie Mae HUD loans playing a secondary role. The rise in interest rates has relatively few customers prepaying their loans, and purchases of mortgage servicing rights have also boosted the size of the servicing portfolio favorably. Overall, gains in loan origination fees and higher servicing fees helped offset smaller gains from mortgage servicing rights.
What's next for Walker & Dunlop?
CEO Willy Walker was ecstatic about the results. "Record financial performance is a direct result of the client base we have built," Walker said, "the daily execution of the Walker & Dunlop team, and our business model." The CEO pointed to the huge gains in key financial metrics for the quarter in "capping off a phenomenal 2017."
Walker & Dunlop also sees the good times continuing. In Walker's words, "With strong fundamentals in the commercial real estate sector, and Walker & Dunlop's scaled lending platform and brand recognition, we expect to continue growing our company and financial results significantly faster than the competition."
It's largely because of that optimism that Walker & Dunlop declared its first dividend. Shareholders will receive $0.25 per share on a quarterly basis in March, and the company expects those dividends to continue. The payout represents a yield of more than 2%, which while modest in the real estate world is still a good place for the company to start. It also adds to the ongoing stock repurchase activity that Walker & Dunlop has done recently.
The recent run-up in interest rates has had some market participants nervous about the real estate market, but Walker & Dunlop shows no signs of slowing in the immediate future. With so much positive momentum, investors can reasonably hope for Walker & Dunlop's continued success in 2018 and beyond.
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