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Arbor Realty: The Money Train Barrels Forward

Aug. 01, 2021 1:35 PM ETArbor Realty Trust, Inc. (ABR)O, STAG, WPC38 Comments
James Bjorkman profile picture
James Bjorkman


  • Arbor Realty recently reported strong second-quarter earnings and raised its dividend for the fifth consecutive quarter.
  • Second-quarter earnings showed a strong 17% Return On Equity and growth in key metrics to new highs.
  • While it's always important to keep an eye on value metrics, Arbor's repeated dividend increases and outperformance vs. the S&P 500 continue to reward shareholders.

Steam Powered Train
Steven_Kriemadis/E+ via Getty Images

I have been covering real estate lender Arbor Realty Trust, Inc. (NYSE:ABR) since March 24, 2015, when I wrote " Arbor Realty Trust: Earn 7% Outside The Box." My most recent article on the company was "Arbor Realty

This article was written by

James Bjorkman profile picture
I had my first passbook savings account in the 1960s, which taught me to invest, and lost money in the 1987 crash. Subsequently, I have run investor chat rooms and an investing blog. I have traveled across the country to lecture on investing, which is a lot of fun because it is great to meet fellow investors. I also am a published author (aside from SA) and maintain a blog covering many different topics at Filminspector.com. I bought my first property in 1993. Real estate is my passion and I enjoy writing about it. I usually invest in income stocks such as REITs, but also follow, invest in, and occasionally cover other areas in articles. I also write in various forums about World War II. Oh, and I was mentioned in "Scam Dogs And Mo-Mo Mamas: Inside the Wild and Woolly World of Internet Stock Trading" (ISBN-13: 978-0060196202) (2000), by Wall Street Journal reporter John R. Emshwiller.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ABR either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (38)

I don't understand the logic of the

old saying pretending that the safest time to buy a stock is after the company raises the dividend.

For me, if there is a increase, in the contrary there is a risk they cannot sustain such increase.
So could you explain how I should understand the saying? And the logic behind it?
Thank you :-)
James Bjorkman profile picture
@Centrino Sure, Centrino. The logic is that boards of directors are very conservative about their companies' finances. Their jobs are not dependent on satisfying investors or anything like that. The motivation lies in protecting the health of the company. They will only raise the dividend if they are certain that the company's finances can support it. If, say, the CEO alone could raise the dividend, then dividends might be raised solely to curry favor with investors, which would help the CEO.

So, the reason for the saying "the safest time to buy a stock is after the dividend has been raised" is because the board has reviewed the company's finances and found them solid enough to support the new, higher dividend. They have determined that there are few risks of some looming fiscal cliff, and they have all the inside knowledge possible at their disposal.

Directors have a special fiduciary duty and are, to some extent at least, independent voices outside of the executive chain of command. Many executives, say VPs and CFOs, might be inclined to support ideas like dividend raises despite misgivings just because the CEO wants them to. Directors overall take this independent role very seriously and their jobs don't depend on pleasing the CEO, they depend on the company surviving in a healthy manner. Of course, I'm speaking in very general terms about this.

History shows that, barring some general market meltdown, companies that raise their dividends can sustain the higher dividend and are in good financial shape with improving prospects. That's my personal observation, and evidently, I'm not alone in that.

Of course, that is no guarantee of anything. Circumstances can always change. A pandemic may hit, a recession might occur, a housing crash, a war, unexpected Fed action, some unexpected variable that changes the financial equation for everyone in a hurry. These types of market-changing events do happen with great regularity, maybe once a decade.

But you are getting the nod now from the people best placed to know what is actually going on with the company, people who have better information than any analyst, that the company is in good shape.

Hope that helps! Thanks for asking.
@James Bjorkman Thanks a lot for your explanation. It is crystal clear. Have a nice day ! :)
Sandstone Capital profile picture
I'm considering adding this as a major holder in my passive dividend income portfolio. Any techies out there know a good entry point? I want a little more capital appreciation. Much appreciated.
Keep in mind that sale of stock by ABR at a premium to book is accretive to existing shareholders. Most high quality REITS expand this way.
James Bjorkman profile picture
@calbrit Thanks for the tip, calbrit! Stock offerings are good for shareholders as long as the company puts the funds to good use, as Arbor appears to be doing.
Well done analysis, pointing out the positives and negatives.

Owned ABR after being alerted to it in 2017, added in the pandemic crash, and sold at a nice profit (too early) when it recovered dramatically last year. Bought back in and again reaping rewards with $15 cost basis. As Brad Thomas said in a post today, "the safest dividend is one that has just been raised." However 50% over book value is indeed cautionary, and the yield now is less appealing than a few months ago.

On the other hand, it is hard to go against CEO Kaufman's secret sauce, in the safe agency space. Wonder if the COVID delta variant concerns might knock ABR and many stocks down? But ABR seems to exist in its own below the radar world (until it doesn't). Can't make up my mind on adding more.
James Bjorkman profile picture
@RealRural Thanks, RealRural, and I appreciate your analysis. I can't let this slip by, though, without pointing out that in this article I also said "There's an old saying in the investment world that the safest time to buy a stock is after the company raises the dividend." ;)
Veeon profile picture
ABR is a three legged REIT where one of its legs is a commission agency that generates cash income and which justifies an above book value price that recognizes earnings not requiring capital.
James Bjorkman profile picture
@Veeon Well put, Veeon, thanks for sharing that!
Thanks for making me aware of this interesting situation.

Before acting on it I'd have to know a lot more about exactly what they do and how they get such high ROE at a time there is so much money and so many smart operators floating around.

Returns seem far out of financial reit norms. When mreit stocks get nosebleed when they approach BV I view 2x book suspiciously. Has the 7% dividend blinded all consideration of valuation?
James Bjorkman profile picture
@RoyalAce How to value a hybrid REIT like Arbor is tricky. It doesn't fit into the normal REIT boxes such as just being a landlord. I have to say that Arbor has mystified a lot of investors over the years, but they keep on producing solid results. Thanks for reading and commenting!
Investrava Analytics profile picture
@James Bjorkman Thanks for your thorough analysis and update on ABR, much appreciated. ABR is a top REIT, but also thanks for pointing out the cons / risks - well balanced analysis.
James Bjorkman profile picture
@INVESTRAVA Thanks, glad you liked it!
Income4ever aka Cyclenut profile picture
Intresting article. ABR is very volatile as is the entire Mreit sector.
I recently sold out after reading another SA contributor with an extensive RE background write he wouldn't be suprised if ABR returned to $13. He also declared ABR possibly the best reit out there today,
If ABR does dip significantly im back in.
In the meantime I'm fan of BRMK as well
James Bjorkman profile picture
@Income4ever aka Cyclenut Thanks for your considered analysis, much appreciated!
ckarabin profile picture
Looking at the book value of $11, one wodners how they earn $2.20/share on just $11? That it itself makes you want to poke at the sustainability of earnings because 20% ROE's are pretty hard to find in finance. Do they have a magic and if so, what is it?
James Bjorkman profile picture
@ckarabin Thanks for commenting, ckarabin. They claim to have an ROE of 17%, and 20% last quarter, as you point out. I can only go on what they say and declare to the SEC as honest financial data. Wherever their magic well is, I wish I could take a few drinks myself!
ckarabin profile picture
@James Bjorkman Thanks for your reply! You just wonder what it is they do and how they are doing it! I don't question the accuracy, just the sustainability of their method.I guess it's like they say, you can;t tell who is swimming naked until the tide goes out!"
James Bjorkman profile picture
@ckarabin It's always good to be skeptical. However, the tide sure went out last year and they swam right through it, so who knows!
sacking profile picture
I started buying ABR when divided was 0.25 a share. It's now 0.35 a share. Long ABR and loving it. Great summary.
James Bjorkman profile picture
@sacking Thanks, sackling! Always like to hear a success story!
Where do you go to determine book price? Does seeking alpha show this metric for reits?
James Bjorkman profile picture
@Legitimate Thanks for asking! It's under the Financials tab. I don't know if that's accessible to everyone, but that's where to find it.

ChuckXX profile picture
Shares outstanding have more than doubled in 4 years. I don’t like that.
James Bjorkman profile picture
@ChuckXX Yes, it's a concern. However, it's not a problem as long as the company puts the money to good use, which is what appears to be happening with ABR. But, you are right to notice it and take it into consideration, that's why I point it out. Thanks for reading and sharing your thoughts with us!
albertciampi profile picture
@ChuckXX my feeling exactly. I exited last month after my holding period went to L/Term Capital Gains. They keep adding more shares and insiders are selling also.
ckarabin profile picture
@ChuckXX Does one care when dollar earnings grew faster than that?
Mr.Sir profile picture
Long ABR, but I am troubled by the overvalued share price. Hopefully low rates mean people will be less likely to default in the coming years. And ABR will have a nice stream from dependable customers.
James Bjorkman profile picture
@Mr.Sir Valuation is always important no matter how well a company is performing. A problem with decreasing rates is that borrowers refinance to lower rates, so rate changes become a double-edged sword. Thanks for reading and commenting!
Hamilton3 profile picture
The 53% market value over book value is cause for concern, considerably higher than other REITs of its kind. In event of liquidation, one loses roughly half of his/her capital. Just be aware of this factor. And if interest rates rise, there could be a squeeze on margins. Look before you leap.
James Bjorkman profile picture
@Hamilton3 Always keep your eyes open! Thanks for reading and sharing your thoughts!
Rdhughes profile picture
Love ABR! Thank you for the great article and all you bring to us small investors!
James Bjorkman profile picture
@Rdhughes Many thanks for your kind words, and I appreciate your reading and commenting!
cfrd profile picture
Best kept secret of all financial REIT's. Sad to se such a favorable article....will only push ptice higher and deprive me of adding as i have in last 3 months.
James Bjorkman profile picture
@cfrd Arbor sure was a secret six years ago when I began writing about it! Thanks for reading and commenting!
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