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A little over a year ago, I reviewed the dividend safety of Arbor Realty Trust (NYSE: ABR). It received a “B” rating.

At the time, the only issue was my expectation for declining net interest income in 2024. Net interest income is the metric we use for mortgage real estate investment trusts, or REITs, to determine whether they are generating enough cash to afford their dividends.

Arbor Realty Trust pays a whopping 14.4% yield. Let’s find out if that dividend is still safe.

Net interest income did in fact drop in 2024, from $428 million to $363 million.

This year, NII is expected to rebound to $409 million.

However, we’ve got a problem.

In 2024, Arbor paid shareholders $395 million. That’s nearly 9% more cash than it took in. In other words, for every $1 it generated in net interest income, it paid out $1.09 in dividends.

The payout ratio will likely be over 100% again this year if the company pays $435 million in dividends as I expect.
 

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Arbor Realty Trust eliminated its dividend during the global financial crisis. But since it reinstated the dividend in 2012, the company has raised the dividend every year – often multiple times per year.

Because it has increased the dividend every year for at least 10 years, its dividend safety rating gets a one-point bonus.

The dividend appears to be a priority for management, but if the total dividend payout exceeds net interest income again, the board of directors will have some hard decisions to make.

With last year’s and this year’s payout ratios both expected to be over 100%, Arbor Realty Trust’s dividend has become less safe.

Dividend Safety Rating: C

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