Arbor Realty Trust, Inc.: This 9% Yield Just Keeps on Growing
A High-Yield Dividend Growth Stock to Consider
In today’s market, it’s rare enough to see a dividend yield of nine percent. What’s even rarer is a nine-percent yielder that is also raising its payout.
I’m talking about Arbor Realty Trust, Inc. (NYSE:ABR), a real estate investment trust (REIT) headquartered in Uniondale, New York. The company focuses on the financing side of the real estate business, providing loan origination and servicing for multifamily homes, seniors housing, healthcare facilities, and other commercial real estate assets.
To most stock market participants, ABR won’t be a familiar ticker. But if you are looking to earn oversized dividends, few stocks can do a better job than this little-known real estate financing company.
You see, on May 10, Arbor Realty Trust, Inc. declared a quarterly cash dividend of $0.28 per share, which represented a 12% increase year-over-year and a 3.7% increase sequentially. The dividend was paid on May 31. (Source: “Dividends,” Arbor Realty Trust, Inc., last accessed June 10, 2019.)
Looking back, we see that since the beginning of 2015, the company’s quarterly dividend rate has grown by a whopping 115%.
Trading at $12.15 apiece, ABR stock offers investors an annual dividend yield of nine percent.
Of course, in an era when a company paying a four percent dividend can proudly brand itself a high-yield stock, a nine percent yield seems too good to be true. So before taking out your wallet, let’s take a look at whether Arbor can actually afford its dividend policy.
Is the Dividend Safe at Arbor Realty Trust, Inc.?
Like most REITs, one of the key performance metrics for Arbor Realty Trust is funds from operations (FFO). By comparing this metric to the amount of dividends paid for a given reporting period, investors can see whether the REIT has generated enough cash to cover its payout.
In 2018, Arbor generated adjusted FFO of $113.1 million, or $1.21 per diluted common share. This marked a substantial increase from its adjusted FFO of $83.9 million, or $1.04 per share earned in 2017. (Source: “Arbor Realty Trust Reports Fourth Quarter and Full Year 2018 Results and Declares Common Stock Dividend,” Arbor Realty Trust, Inc., February 15, 2019.)
And since the company declared and paid four quarterly dividends totaling $0.98 per share in 2018, it had a regular dividend payout ratio of just 81%.
Mind you, quarterly dividends aren’t the only checks that ARR stock investors have collected. Last December, the company’s board declared a special dividend of $0.15 per share. The dividend came from a sizable gain from a litigation settlement in the third quarter of 2018. Investors had a choice to receive the dividend payment in cash or in ABR common shares. The dividend was paid on January 31, 2019. (Source: “Arbor Realty Trust Declares Special Dividend of $0.15 per Share,” Arbor Realty Trust, Inc., December 17, 2018.)
The neat thing is, after adding the special payment, we see that Arbor declared total dividends of $1.13 per share for the year—an amount that’s still covered with ease by its adjusted FFO of $1.21 per share.
Moving into this year, things look equally solid. In the first quarter of 2019, the company’s adjusted FFO came in at $35.5 million ($0.33 per diluted share)—another solid improvement from the $21.4 million ($0.25 per diluted share) earned in the first quarter of 2018. (Source: “Arbor Realty Trust Reports First Quarter Results and Increases Quarterly Dividend to $0.28 per Share,” Arbor Realty Trust, Inc., May 10, 2019.)
Given the REIT’s first-quarter dividend payment of $0.27 per share, its payout ratio came out to 82%.
As a rule of thumb, I like to see REITs paying out less than 90% of their funds from operations so they could have a margin of safety in their dividend policy. Judging by the numbers from Arbor, the company’s dividends remain safe.
More Dividend Hikes to Come?
Past performance does not guarantee future results. But at Arbor Realty Trust, Inc., management is confident about continuing the company’s dividend hike streak.
“We’re also very comfortable with the stability of our dividend and optimistic based on our baseline revenues and the status of our pipeline that we will be able to continue to grow our dividend,” said President and Chief Executive Officer Ivan Kaufman. (Source: “Arbor Realty Trust, Inc. (ABR) CEO Ivan Kaufman on Q4 2018 Results – Earnings Call Transcript,” Seeking Alpha, May 10, 2019.)
As it stands, Arbor already offers a more-than-generous yield of nine percent. If the company can continue growing its dividend as management predicts, investors who purchase ABR stock today will likely earn a double-digit yield on cost in the not-too-distant future.