Arbor Realty Trust (ABR) has been a regular stock featured in Investor's Business Daily's Income Investor column, thanks to a series of rapid dividend hikes over the past few years. Now, those dividends could come in handy for investors seeking yield in a challenging environment where markets and valuations are surging.
Specializing in originating and servicing loans for multifamily properties, Arbor is a smaller-cap stock that offers opportunities for eye-catching yields, especially for those willing to accept additional risks.
Currently, the S&P 500 has an average yield of just 1.2%, a level not seen since the aftermath of the dot-com bubble of 2001. This year, however, Arbor's dividend has stabilized at 43 cents quarterly, which still nets investors a massive 11.1% yield.
The company's next quarterly dividend is quickly coming due, with an expiry date of Nov. 15.
Despite its attractive yield, Arbor has faced challenges, primarily from high delinquencies. In its most recent third-quarter earnings report, the company showed modest progress, with delinquencies dropping by $45 million from the previous quarter's $1 billion.
Arbor also has been successful in reducing leverage. It decreased its debt-to-equity ratio to 3-to-1 from a high of 4-to-1 in 2023.
But earnings remain weak. Analysts expect per-share earnings to decline to $1.73 this year from $2.25 in 2023.
And investors should exercise additional caution as a government investigation looms.
The probe follows allegations from short-seller Viceroy Research, which claims Arbor is significantly overstating asset values. When reporting third-quarter results, Arbor's executives declined to comment on the investigation. The probe is expected to be a major catalyst for the stock.
Yet the future could be bright. Advocates will point to the federal reserves path of easing interest rates. That should increase demand for multifamily loans and lower delinquencies.
However, the pace of rate cuts is uncertain, as evidenced by the recent rise in yields after the election. Now, a sharp drop in rates is far from guaranteed.
Shares of Arbor Realty Trust are forming a flat base with a 15.94 buy point, according to MarketSurge Research.
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