Arbor Realty Trust Common Stock: A ‘Perfect 10’ Dividend Idea (NYSE:ABR)

What do Nadia Comăneci, Bo Derek, Arbor Realty (NYSE:ABR) and bowling all have in common? Well, Nadia Comăneci made history by becoming the first Olympic gymnast to score a perfect 10, which she earned on the uneven parallel bars at the 1976 Olympics in Montreal. Three years later, Bo Derek shot to international stardom from her role in “10”, the top grossing movie of 1979 where she was cast as the perfect “10”. Bowling? Knock down all 10 pins with each ball in all 10 frames and you get a perfect score.

Each of these indelibly links a 10 to perfection. What about Arbor? Early last month it increased its dividend for a 10th consecutive quarter. Not only that, but it also can be purchased for less than $14 per share. That means that the forward yield from the $1.60 annual dividend would be in excess of 10%! (The yield is actually closer to 11.5% as I draft this article, but why let that get in the way of a list of perfect 10’s?)

The Dividend

Why the focus on the dividend? Mostly because it was the reason I first invested in Arbor back in 2007, and it’s the main reason that it is now our second largest position. And, to save time for anyone interested in some of the historic figures, the purchase price was $16.52/share in late 2007 when I bought 83 shares for my daughter’s ROTH IRA, and the annual dividend was an eye-popping $2.48. The shares quickly moved up to $19 and I felt like a genius. Unfortunately, that dividend would be drastically cut from $0.62/share to $0.24/share by late 2008, and after a single $0.24 payment, the dividend would be suspended.

It wasn’t until the middle of 2012 that the dividend would be reinstated at a paltry $0.075. It would rise to more than 10 cents (another “10”, although this one wasn’t exactly “perfect”) by the end of 2012. It would take years before the dividend yield would be high enough for me to consider recommending Arbor on Seeking Alpha. That was at the end of 2018, when I wrote my first article on Arbor. The main reasons for the “Buy” recommendation at that time were:

1. The dividend yield approaching 10% (actually 9.4% based on a $1.08 annual dividend and an $11.29 share price),
2. A steadily rising dividend that had plenty of room to grow, and
3. Having Leon Cooperman, one of the world’s wealthiest (and most successful) investors, participating on the conference calls, congratulating management and stating that he had been a shareholder “a long time”.

When it comes to the dividend, not too much has changed since that first article. Arbor has continued to pay out some nice dividends. Nice enough, so that despite my poor timing for the initial purchase in my daughter’s ROTH, the continuous reinvesting of the dividends has resulted in that position growing to just over 280 shares valued at ~$3900. That’s a compounded annual rate of return exceeding 8% – not spectacular, but far from my poorest investment.

Is Arbor A Perfect 10?

There are many things to like about Arbor besides its dividend and its management. Its CEO and CFO have been together for a long time, it has been well run, has a diversified income stream, is a top lender under certain government programs, focuses on a limited number of geographic areas and particular verticals within those areas. For some investors, that’s enough.

For others, the volatility of the share price can be a non-starter. Over the past five years we saw the shares start 2018 at $8.64, peak at $12.79, drop back to $9.79 and close the year at $12.07. 2019 saw the shares peak at $15.77 before closing the year at $14.18. Early 2020 saw the COVID-19 pandemic sell-off drive the price to a low of $3.54 before it bounced back to $14.95 late in the year and close at $14.18. 2021 saw more volatility, with the shares rising as high as $20.74 in Q4 before closing the year at $18.32.

This year the volatility has continued, with the shares now trading below $14, well below the $20.74 high of 2021 – or even the 2021 closing price of 18.32. One only has to look at the chart on the Seeking Alpha summary page for Arbor Realty to see that the 52 week high was $18.88 and the low was $11.16. Despite the fat dividend yield, that’s far too much volatility for many income hungry investors.

Additional Disclosures and Rating

Seeking Alpha requires authors to give one of five ratings to stocks in primary ticker articles. As noted several times in this article, we are long Arbor Realty, to the point where it is our second largest holding. For the most part, the dividends on these positions are automatically reinvested, and I have no intention of turning off the DRIP or unloading the shares. I should also make clear that one of our positions is a pure trading position. As such, I have no intention of reinvesting those particular dividends and will close the position should my target price be reached.

So, despite the intention to liquidate that particular position under certain circumstances, I will be rating Arbor a Strong Buy.

Summary

I am not unbiased with respect to Arbor. It is our second largest stock investment and through its dividends, provides a significant source of our current income. I expect to see management maintain its focus on areas where it has a proven track record and continue to increase its dividends. Whether board adds another four consecutive one cent quarterly increases remains to be seen.

As may be surmised from my Seeking Alpha ID, I like playing with numbers. As such, I made sure the word count for this article is 10 cubed.