At 10%, Is Arbor Realty Trust Dividend Worth It?

To be fair, Arbor Realty Trust (NYSE: ABR) is not a stock but a REIT but yes, its 10% yielding units are worth it. Yes, I know that REITs come with tax implications that make them less attractive for average investors and in regular accounts but they are an investment vehicle with many attractive qualities and well-suited for tax-shielded retirement accounts. Aside from the income and the opportunity for capital appreciation, REITS are a real asset and as such offer diversification away from stocks, some protection against inflation, and they can reduce volatility in a balanced portfolio. 

What Is Arbor Realty Trust? Arbor Realty Trust is a real estate investment company that operates a growing portfolio of multi-family units as well as provides lending services for the commercial multi-family market. The company invests in a wide range of bridge and mezzanine-type loans as well as other housing-backed securities. The company operates as a full-service lender with its in-house servicing department and is ranked among the US top lenders. As of 2022, the company’s portfolio of investments was worth more than $42 billion and it was generating more than $16 billion in annual loan originations. 

Arbor Realty Trust Stock Price Recovered From Housing Bust 

Arbor Realty had the unfortunate luck to get launched just before the Housing Bust in 2007/2008 and that can clearly be seen in the price history. What can also be seen in the price history is a steady recovery of value from the post-bust lows and that trend is expected to continue into the future. The upward movement in the share price is driven by the company’s growing value as well as its growing dividend. The 10.5% yield is a red flag, dividends this high don’t usually last, but once you dig into the numbers it becomes clear this payment is not only safe but growing. 

As a REIT, the company is required to payout at least 90% of its earnings as dividends and there is a substantial amount of room in the outlook for an increase this year and, more specifically, incrementally with each quarterly declaration. Because the current payout is only 74% of the consensus for earnings it is very likely the company will continue to increase at the high 16% CAGR it has been maintaining for the last 5 years or accelerate the pace in order to remain compliant with regulations. 

And rising interest rates are aiding the business as well. The company’s last earnings report included a sizeable earnings beat due to the increase in average yield from the investment and loan portfolios. With many of the loans tied to an adjustable rate the average yield rose to 5.26% from 4.86% on a sequential basis and interest rates are expected to rise substantially again this year. The takeaway is that rental demand and pricing remain strong and margins are improving which both bode well for capital growth and dividend increases.  

Arbor Realty Trust Stock Forecast: Buy On The Dips

Arbor Realty Trust is trending higher in the long-term but experiencing some weakness in the near term in tandem with the broader market. In this light, and in light of the fundamental strength of the rental market, and the company’s growing dividend, any weakness should be viewed as a buying opportunity by investors with a long-term, buy-and-hold investment strategy.