Arbor Realty Trust (NYSE: ABR) is an extremely undervalued real estate investment trust (REIT) that currently offers a massive dividend yield of 14.13%.
This is significantly higher than the average REIT, which yields around 4-5%. With shares trading at just 6.9 times trailing earnings, Arbor Realty is one of the cheapest stocks in the entire REIT sector.
Investors looking for both value and high income should take a close look at this overlooked opportunity before it’s too late. Here’s why Arbor Realty deserves a spot in your portfolio today.
Overview of Arbor Realty Trust
Arbor Realty Trust is a specialized REIT that focuses on investing in a diversified portfolio of structured finance assets. The company operates two main business segments:
Structured Business
The structured business segment deals in bridge loans, mezzanine loans, junior participations in first mortgages, preferred equity, and commercial real estate-related joint ventures. This segment accounts for the majority of Arbor Realty’s investment portfolio.
Agency Business
The agency business segment underwrites, originates, sells, and services multifamily mortgage loans through Fannie Mae, Freddie Mac, and HUD programs. This smaller segment provides diversification to Arbor Realty’s income streams.
Arbor Realty likes to focus on high-yielding investments while maintaining a low-risk approach. The company has meticulous underwriting standards and looks for strong collateral positions in its deals.
This strategy has allowed Arbor Realty to deliver consistent profits throughout different economic cycles. The company has increased its dividend every year since going public in 2004, proving the resiliency of its business model.
Why Arbor Realty is Significantly Undervalued
As mentioned earlier, Arbor Realty stock trades at just 6.9 times trailing earnings. To put this into perspective, here is how this compares to other major REITs:
- Realty Income (NYSE: O) – 20x P/E
- W.P Carey (NYSE: WPC) – 18x P/E
- STAG Industrial (NYSE: STAG) – 25x P/E
The entire REIT industry averages a P/E ratio around 20x. Yet Arbor Realty is less than one-third of this valuation.
Clearly, Mr. Market is significantly underappreciating this company’s growth potential. But why is the stock so cheap?
Arbor Realty is still flying under Wall Street’s radar. Despite having a $2.4 billion market cap, fewer than 5 analysts cover the stock. Low coverage leads to low demand, which suppresses the share price.
The company also carries higher debt levels than its peers, which scares away some investors. However, Arbor Realty has best-in-class risk management. The higher leverage simply boosts profits during good times.
Long story short, these temporary headwinds have created a long-term opportunity. Value investors can now buy a high-quality business for pocket change.
Arbor Realty’s Impressive Dividend Growth
As mentioned earlier, Arbor Realty currently offers a massive 14% dividend yield. This is 7-10x greater than the average REIT.
But Arbor Realty isn’t just high-yielding – it’s also a dividend growth juggernaut. The company has increased its dividend every single year since going public in 2004.
Despite tough economic environments, recessions, and pandemics, Arbor Realty’s dividend has gone up and up. This shows the true safety and resiliency of the payout.
And at just 71% of earnings, the dividend has plenty of room to grow. Investors buying shares today should expect at least high single-digit annual dividend growth for the foreseeable future.
Final Thoughts
Arbor Realty Trust is the rare combination of both deep value and high dividend yield. Shares trade at just 7x earnings and pay a 14% dividend.
This underfollowed stock offers recession-resistant income with explosive upside as it gets discovered. Now is the time to start building a position before Wall Street wakes up.
Income investors still have a chance to lock-in a 14% yield that should grow 10% annually like clockwork. But that window is closing quickly – buy Arbor Realty today before it’s too late!