Arbor Realty Trust, Inc. (ABR) cut its dividend due to higher interest rates and increased delinquencies. Additionally, rapidly changing economic and business conditions, as well as tariffs, have created uncertainty for the Trust. The firm is maintaining liquidity while working through the delinquencies, but the process takes time. Arbor Realty had a 12-year streak of annual increases and was a Dividend Contender. It will lose both because of the cut.
The share price has fallen more than 50% since late 2021. Investors sold this dividend stock due to concerns about lower occupancy rates, higher interest rates, and delinquencies. Depending on economic conditions, interest rates, and operating results, another reduction may occur in the future.
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Overview of The Arbor Realty Trust
The Arbor Realty Trust, Inc. was founded in 2003. The firm invests in a portfolio of structured finance assets in the residential rental and commercial real estate markets. It operates through two business segments: Structured Business and Agency Business. It primarily invests in bridge and mezzanine loans but also offers multifamily mortgages and other forms of financing. As such, Arbor Realty Trust is considered a mortgage real estate investment trust (REIT). It is not subject to federal income taxes if it distributes at least 90% of its taxable income to shareholders.
Total revenue was $363.3 million in 2024 and $335.1 million in the past twelve months.
Dividend Cut Announcement
During the first quarter fiscal 2025 results announcement on Friday, May 2nd, Arbor Realty Trust Companies (ABR) lowered its dividend. The company’s quarterly dividend rate was $0.43 per share before the announcement. The dividend is now $0.30 per share, a 30.2% reduction. In the quarterly results announcement on May 2nd, the Trust stated,
“The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.30 per share of common stock for the quarter ended March 31, 2025. The dividend is payable on May 30, 2025 to common stockholders of record on May 16, 2025.”
Later, in the earnings call transcript, the company’s President and CEO stated,
“…our quarter results were in line with our previous guidance with us producing distributable earnings at $0.31 per share in the first quarter. Based on these results and the environment we are currently operating our Board has decided to reset the quarterly dividend to $0.30 a share which again is in line with our guidance.”
“We anticipate that the next nine months will continue to be very challenging due to the significant drag on earnings from our REO assets and delinquencies and from the effect the higher interest rate environment is having on our originations business all of which will make 2025 a transitional year which is reflected in our revised dividend. As we successfully resolve these assets and if we continue to see rate relief we believe we will be well positioned to grow our earnings and dividends again in 2026.”
Effect of the Change
By implementing a 30% dividend cut, Arbor Realty Trust sought to reduce its distribution and provide financial flexibility due to a challenging economic environment and higher interest rates. The firm is experiencing challenges with both delinquencies and high interest rates. Furthermore, the Trust’s outlook for 2025 was weak, with distributable earnings of only $0.30 to $0.35 per share per quarter. The REIT’s annual dividend rate has been increasing since 2012, and thus, the cut means Arbor Realty will lose its 12-year streak and Dividend Contender status. The result is less free cash flow is required for the dividend distribution, allowing the retailer to focus on preserving liquidity.
Challenges
Arbor Realty Trust is facing a challenging economic environment, which has resulted in higher interest rates and increased delinquencies. As a result, the REIT’s earnings, cash flow, and dividend distributions have been negatively impacted.
Interest Rates
Interest rates have been volatile since the start of the new administration. Moreover, they have trended upward, with 10-year yields rising due to the impact of inflation expectations. The U.S. Federal Reserve is likely to maintain high interest rates because expectations are elevated, while unemployment remains relatively subdued. Another consideration is the economic uncertainty caused by ad hoc tariffs, which result in higher rates. The problem for Arbor Realty is higher rates cause reduced origination volumes.
Delinquencies
Higher interest rates are also contributing to an increase in delinquencies, which is compounded by low occupancy rates in certain types of commercial real estate. The REIT’s plan for resolving their remaining delinquencies is to take them back as REO. However, the firm may sell these properties as losses unless they start generating a greater income. That said, Arbor Realty has stated that it will take 12 to 24 months to reposition these properties.
Dividend Safety
Arbor Realty Trust’s dividend safety was low because of declining revenue and earnings per share (“EPS”). Earnings per share exhibited a rising trend, peaking in 2021 before declining. Similarly, revenue increased until late 2023 before decreasing. Consensus EPS is expected to decrease to $0.72 per share in 2025.
As seen in the chart below from Portfolio Insight*, the dividend yield climbed rapidly to over 16%. A value of over 10% usually indicates a distressed company experiencing poor operating results. It was much greater than the 5-year average of 10.93%. After reducing the dividend by approximately 30%, the expected forward dividend yield is now around 12.53%. The quarterly rate is $0.30 per share. However, the yield is still appreciably higher than that of the S&P 500 average. Additionally, the value suggests another cut in the future.
The annual dividend now requires about $230.4 million ($1.20 yearly dividend x 192 million shares), compared to $325 million in 2024 for the common dividend. In addition, based on consensus 2025 estimates of $0.72, the payout ratio is expected to exceed 100%. However, some REITs have payout ratios greater than 100%, while funds from operations, financing, and equity issuance are sufficient to cover the dividend.
Although the dividend is in a better position and more secure now, the firm’s dividend is not entirely safe. Persistently high interest rates may force another dividend cut. Furthermore, issuing debt and equity will result in additional cash needed to pay the dividend, leading to further reductions.
Final Thoughts on the Arbor Realty Trust (ABR) Dividend Cut
Until the cut, Arbor Realty Trust was a dividend growth stock, increasing the annual dividend for 12 consecutive years. Although the firm successfully navigated the coronavirus pandemic, higher interest rates presented difficulties for loan originations and delinquencies. Moreover, the present economic situation and tariffs are risk factors. The dividend safety metrics were relatively poor. As a result, Arbor Realty Trust cut its dividend. However, we view the REIT as at risk for another reduction.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.