Ares Commercial Real Estate Corp: Will This 8.3% Yielder Pay Investors Even More?
ACRE Stock Is a High-Yield Stock to Think About
Most people have never heard of Ares Commercial Real Estate Corp (NYSE:ACRE), but the company deserves investors’ attention for a very simple reason: it’s one of the most generous dividend payers in today’s stock market.
As its name suggests, the company is in the commercial real estate business. More specifically, it provides a broad range of financing solutions to commercial real estate owners and operators through its national direct origination platform.
Ares Commercial Real Estate Corp is structured as a real estate investment trust (REIT). Of course, while REITs are often considered high-yield instruments, their payouts aren’t carved in stone. Due to impacts from the COVID-19 pandemic, quite a few REITs—including many on the commercial side—cut back their dividends last year.
Since Ares Commercial Real Estate originates and invests in commercial real estate loans, one might expect that it also slashed its payout last year. But that wasn’t the case. The REIT was paying quarterly dividends of $0.33 per share before the pandemic, maintained that dividend during the outbreak and lockdowns, and continues to pay the same amount today. (Source: “Dividends,” Ares Commercial Real Estate Corp, last accessed September 9, 2021.)
With Ares Commercial Real Estate stock trading at $15.88 per share at the time of this writing, the REIT offers an annual dividend yield of 8.3%.
But there’s more. When the company paid its second-quarter dividend on July 15, it also paid a supplemental cash dividend of $0.02 per share.
Then, on July 30, Ares Commercial Real Estate Corp’s board of directors declared another $0.02-per-share supplemental dividend—alongside the regular dividend of $0.33 per share—for the third quarter of 2021. Both the regular and supplemental cash dividends will be paid on October 15 to shareholders of record as of September 30.
In other words, ACRE stock investors are earning more than just the stated yield, which was calculated based on the regular quarterly payments.
Note that we’re in a market where most stocks don’t yield nearly as much as 8.3%—and don’t offer any supplemental dividends. So is Ares Commercial Real Estate stock too good to be true?
Well, the company has done a pretty good job at covering its payout. In the pandemic-struck 2020, Ares Commercial Real Estate generated distributable earnings of $1.36 per share, which was in excess of its total dividends of $1.32 per share paid for the year. (Source: “Ares Commercial Real Estate Corporation Reports Fourth Quarter and Full Year 2020 Results,” Ares Commercial Real Estate Corp, February 18, 2021.)
On a trailing 12-month basis (as of June 30), the REIT’s distributable earnings came in at $1.50 per share. Its dividend payments—including supplemental ones—totaled $1.36 per share during this period, so the payout was covered. (Source: “Ares Commercial Real Estate Corporation Reports Second Quarter 2021 Results,” Ares Commercial Real Estate Corp, July 30, 2021.)
Management is also quite confident that the company will be able to cover both its regular and supplemental dividends from distributable earnings for full-year 2021. (Source: “Ares Commercial Real Estate’s (ACRE) CEO Bryan Donohoeon Q2 2021 Results – Earnings Call Transcript,” Seeking Alpha, July 30, 2021.)
Of course, supplemental dividends are, by definition, supplemental. That means the payments don’t have to be recurring like regular quarterly dividends. So will ACRE stock investors get a supplemental dividend in the fourth quarter?
Well, here’s what Ares Commercial Real Estate Corp’s chief financial officer, Tae-Sik Yoon, said about the sustainability of the supplemental payout during the REIT’s latest earnings conference call:
Earlier this year, when we instituted the supplemental dividend of $0.02, we obviously said that we expect that to set dividend to be in place for the full year of 2021. And that towards the end of the year, we would reevaluate kind of what to do with that $0.02 supplemental dividend, obviously, so far we’ve announced three quarters of that dividend consistent with our initial indications. And again, we’re certainly on pace for the fourth quarter to do the same, obviously we haven’t declared that yet. But I think we’re on pace to do that. [sic]
Bottom Line on Ares Commercial Real Estate Corp
In the world of dividend stocks, being able to offer an 8%+ yield and cover it is quite an impressive feat.
If Ares Commercial Real Estate Corp can continue its supplemental dividends on top of its generous regular payouts, it would make ACRE stock a very special ticker for yield-seeking investors.