This has been an unusual year in the stock market. Inflation in the U.S. and around the world has been high for over a year, and the Federal Reserve is responding by aggressively raising interest rates in an effort to get it back down to more normal levels.
But rapidly rising interest rates tend to be bad for equities, and the S&P 500 index recorded its worst first half since 1970. Traders have particularly punished growth stocks that previously sported sky-high valuations, but shares of plenty of rock-solid businesses have also fallen.
One stellar business down 33% from the start of the year is Walker & Dunlop (WD -5.90%), the multifamily real estate lender. If you’ve got cash on the sidelines you want to put to work in stocks, Walker & Dunlop is one of the smartest buys you can make. Here’s why.
Walker & Dunlop is a top lender with an excellent growth history
Walker & Dunlop finances apartment buildings and multifamily housing units across the U.S. It’s one of the largest lenders in the U.S. in loans financed through Fannie Mae.
Over the last decade, the company’s transaction volume for multifamily and other property loans has grown by 32% annually. That has translated into impressive growth in earnings, with revenue and diluted earnings per share growing by 22% and 19% annually over that same period.
This tailwind will boost its future growth
Multifamily property loans tend to be for shorter terms than single-family mortgages — typically, they run for up to 10 years, after which a big lump-sum payment comes due. Because most borrowers can’t cover those lump sums, they choose to refinance the remaining debt at the end of the loan terms.
CEO Willy Walker says the next few years will feature a “wave of maturities” as hundreds of billions of dollars in multifamily loans mature — presenting the company with an excellent growth opportunity.
Helping America address the affordable housing gap
One of the ways Walker & Dunlop plans to grow is by being one of the top affordable housing lenders in the U.S. The company is already the fifth-largest affordable housing lender through Fannie Mae and the top affordable lender through Freddie Mac, but management has bigger plans.
In March, Walker outlined a goal to originate over $60 billion in affordable housing loans over the five-year period ending in 2025. To help it achieve this goal, the company spent nearly $700 million to buy Alliant in one of its most significant acquisitions ever.
That deal gave it an additional 100,000 affordable housing apartment units and $14 billion in additional assets under management. It will also give Walker & Dunlop a strong foothold for future lending opportunities. That’s because this year, 50% of Fannie Mae’s and Freddie Mac’s multifamily lending volume must go to what it defines as “mission-driven affordable housing units.” For 2023 and 2024, the Federal Housing Finance Agency has proposed that those government-sponsored enterprises should boost that target to 61% of their multifamily loans.
Walker & Dunlop has built strong relationships with multifamily borrowers and the government agencies and government-sponsored enterprises that back most of its loans. Given the scarcity of affordable single-family homes in the U.S., Walker & Dunlop is in an excellent position to provide a much-needed solution.
At its current share price, Walker & Dunlop’s dividend offers investors an attractive 2.4% yield, and with the stock down nearly 33% year to date, now could be an excellent time to build a position in this real estate lender.
Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walker & Dunlop. The Motley Fool recommends Walker & Dunlop, Inc. The Motley Fool has a disclosure policy.