Arbor Realty Trust

Stock: ABR

Rating: Buy

Author: Waleed M. Tariq

Summary

  • I expect Arbor Realty Trust to grow with post-inflation economic growth.
  • Rising interest rates threaten the mREIT’s net interest income.
  • The company has 7 consecutive quarters of dividend growth.

Bullish

  • In 2021, the company issued 23,000,000 preferred shares at 6.34 percent. Series A, B, and C preferred stock were redeemed for $93.3 million at 8.14%.
  • The corporation has shown 7 consecutive quarters and 10 years of dividend growth.
  • The company’s revenue, growth, and debt management reflect efficient management.

Bearish

  • Mortgage REIT book value and stock prices may be affected by rate hikes.

Mortgage REITs

  • mREITs profit from their net interest margin, or the spread between mortgage interest income and mortgage and MBS funding costs.

Arbor’s Performance

  • Net interest income climbed 49%, but net income grew 94% to $317.4 million, yielding $2.28 per diluted common share and $2.01 in 2021, a 15% gain over 2020.
Arbor
Source: Arbor

Debt Structure Improvements

  • Arbor’s average loan cost declined to 2.65% from 2.76% in the third quarter. The company’s debt portfolio averages 4.26 percent in 2021, down from 5.23 percent in 2020.

Strong Dividend Growth

  • Arbor raised its dividend for the seventh straight quarter and tenth year to $0.37 per share payable in March, exceeding the mREITs sector average of 7.4%.
Dividend yield by asset class
Nasdaq

Conclusion

  • Stocks are down 7% YTD due to rate rise predictions. The stock is well-positioned for passive income investors despite rate hike fears.