Starwood Property Trust‘s (NYSE: STWD) 13.5% yield is one of the highest yields among mortgage real estate investment trusts, or mREITs as they are known.

These companies make money by borrowing funds short term at low interest rates and lending them out longer term at higher interest rates.

The difference between what an mREIT borrows and what it makes from lending (minus expenses) is called net interest income. That’s the metric we look at when evaluating an mREIT’s dividend.

Starwood Property Trust has been in business for 29 years and boasts a $17 billion portfolio.

This year, Wall Street forecasts a giant 81% jump in net interest income to $528 million from $292 million in 2019.

That is certainly good news.

What is not such good news is the fact that even with the spike in net interest income, Starwood Property Trust cannot afford its dividend.

This year, Starwood is forecast to pay $546 million in dividends, eclipsing the $528 million in net interest income. That’s certainly better than last year, when it paid $538 million – which was nearly double the company’s net interest income.

You can see from the chart that Starwood Property Trust pays shareholders more than it makes.

That is not sustainable…

The company has never cut its dividend since it began paying one in 2010, and it has maintained the $0.48 per share quarterly payout since 2014. That is somewhat impressive, especially considering Starwood hasn’t been able to actually afford that dividend in years.

Will the next 12 months be the time that Starwood Property Trust finally has to face the music and cut its dividend?

Hard to say. Management has clearly stated it will do whatever it can to continue to pay shareholders, but the numbers simply don’t work. It will have to continue to raise or borrow money, like it often does, to sustain the dividend.

So while the company’s commitment to the dividend is admirable, the dividend has to be considered at-risk.

Dividend Safety Rating: D