Mortgage real estate investment trusts (mREITs) are popular with investors seeking high-yielding dividends.
But mREITs are not for everyone because they can be quite volatile. Over the past five years, several popular mREITs such as Annaly Capital Management Inc. NLY and AGNC Investment Corp. AGNC have produced negative total returns — even with double-digit dividend yields.
Take a look at one mREIT that has not only grown its dividend but, even with a down year in 2022, also shows a positive total return over the past five years.
Arbor Realty Trust Inc. ABR is a Long Island, New York-based mREIT that initiates bridge and mezzanine loans for commercial and residential properties. Many of its loans originate through Fannie Mae and Freddie Mac programs.
Like other mREITs, the spread between the cost of financing a loan and the interest earned from that loan is the profit generated. Many of Arbor Realty Trust’s commercial loans are first mortgage liens that are short term with higher interest rates.
If you invested $10,000 in Arbor Realty Trust five years ago, you would have purchased 1,157.41 shares at a price of $8.64 per share. The quarterly dividend was $0.21 per share, and the annual yield at that time was 9.7%.
With its recent closing price of $13.15, the share price has risen by 52% over the past five years. During that time, Arbor Realty Trust has increased its quarterly dividend a remarkable 15 times for 10 consecutive quarters, with the dividend payment now reaching $0.40. Few companies see 90% dividend growth over five years, and several of the mREITs have even cut dividend payouts at least once during that time.
That speaks well to the confidence Arbor Realty Trust has about its future. The current yield of 12.1% is well above its five-year average yield of 9.12%, which implies that the shares are still quite undervalued.
While the annual earnings per share (EPS) of $1.51 is less than the $1.60 forward annual dividend, third-quarter distributable EPS of $0.56 is more than ample for the $0.40 dividend. Arbor Realty Trust’s payout ratio of 71% is still in the moderately safe range.
The original investment has produced $6.42 of nonreinvested dividends over the past five years and a total return between appreciation and dividends of 126.5%. The bottom line: If you invested $10,000 in Arbor Realty Trust five years ago, your investment would now be worth $22,645.87.
If, like many investors, you chose to reinvest dividends rather than collecting the income, your 1,157.41 shares would have grown to 1,861.91 shares, with an impressive total return of 144.84%. Your $10,000 investment would now be worth $24,481.47.
With total returns like that, Arbor Realty Trust’s performance over the past five years puts it not only at the top of the mREIT list but also that of all major REITs.
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