Wednesday, 5 March 2025

An Update on a Popular 14% Yielder

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Arbor Realty Trust: An Update on This Popular 14% Yielder

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

A little over a year ago, I reviewed the dividend safety of Arbor Realty Trust (NYSE: ABR). It received a "B" rating.

At the time, the only issue was my expectation for declining net interest income in 2024. Net interest income is the metric we use for mortgage real estate investment trusts, or REITs, to determine whether they are generating enough cash to afford their dividends.

Arbor Realty Trust pays a whopping 14.4% yield. Let's find out if that dividend is still safe.

Net interest income did in fact drop in 2024, from $428 million to $363 million.

This year, NII is expected to rebound to $409 million.

However, we've got a problem.

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In 2024, Arbor paid shareholders $395 million. That's nearly 9% more cash than it took in. In other words, for every $1 it generated in net interest income, it paid out $1.09 in dividends.

The payout ratio will likely be over 100% again this year if the company pays $435 million in dividends as I expect.

Chart:
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The Safety Net system's alarm bells start going off when it sees payout ratios above 100%...

But Arbor Realty Trust does have something going for it that could boost its grade.

Click Here for ABR's Safety Net Grade
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