Arbor Realty Trust (ABR – Free Report) shares plunged 16% over the past six months, underperforming the industry’s growth of 0.5% and the S&P 500’s rise of 1.4%. Meanwhile, its peers AGNC Investment (AGNC – Free Report) and Annaly Capital Management (NLY – Free Report) have risen 4.8% and 13.2%, respectively.
Price Performance
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The recent market slump is largely due to mounting concerns about the economic slowdown and the uncertainty about the impacts of tariff plans being pursued by the Trump administration. These factors have led the Federal Reserve to keep the interest rates steady so far in 2025. Given this, mortgage rates continue to remain relatively higher.
Per the FreddieMac report, the average rate on the 30-year fixed-rate mortgage rose to 6.67% for the week ended March 20, 2025, from 6.65% a week ago.
If mortgage rates stay higher for an extended period, ABR may encounter several difficulties. High rates usually result in less demand for mortgage refinances and originations. This will restrict the company’s ability to grow and possibly cause its portfolio to stagnate. Higher rates for an extended period may further result in a significant drop in book value.
Given this, the question arises: Is it time to part ways with the ABR stock or hold on to it for now? Let us take a look at other factors at play.
Arbor Realty & Dividend Payout
This New York-headquartered REIT primarily focuses on originating and servicing loans for multi-family, single-family and other commercial real estate assets. Mortgage REITs tend to be more volatile than equity REITs because they are tied to interest rates, but the high yields make them appealing to watchful investors.
Income-seeking investors have a large appetite for REIT stocks, as U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends. As for ABR, the company has a record of paying monthly dividends.
Arbor Realty has a track of paying a quarterly dividend of 43 cents. ABR’s current dividend yield is 14.06%. This is impressive compared with the industry’s average of 10.67% and attracts investors as it represents a steady income stream.
Arbor Realty Trust Dividend Yield (TTM)
Arbor Realty Trust dividend-yield-ttm | Arbor Realty Trust Quote
Over the past year, ABR has raised its dividend 12 times, with a payout ratio of 102% and an annualized dividend growth rate of 9.05%.
Arbor Realty’s peers NLY and AGNC are also providing investors with solid dividend options. NLY has an annual dividend yield of 11.99%, while AGNC has a dividend yield of 14.16%.
Arbor Realty & Strong Servicing Portfolio
The company’s growing agency loan servicing portfolio, which generates substantial annual fee income, provides a stable and recurring revenue stream. This diversification of income sources helps offset potential volatility in loan origination volumes. Additionally, the servicing portfolio positions Arbor Realty well to address refinancing opportunities as they arise, potentially leading to higher origination volumes in the future.
Arbor Realty’s agency loan servicing portfolio has continued to grow, reaching $33.5 billion by the end of 2024, reflecting an increase of 8% from the year-ago period.
Arbor Realty’s Lofty Valuation
From a valuation standpoint, ABR appears expensive relative to the industry. The company is currently trading at a stretched valuation with a forward 12-month price-to-tangible book (P/TB) multiple of 1.04X, above the industry average of 0.99X.
Price-to Tangible Book TTM
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The stock is also trading at a discount compared with its peers. NLY and AGNC have current forward 12-month P/E of 1.11X and 1.18X, respectively.
How to Play ABR Stock Now?
Arbor Realty continues to navigate a challenging market environment, balancing the pressures of high interest rates with opportunities in its core lending and servicing businesses.
Its strong servicing portfolio, ultra-high dividend yield and high payout are eye-catching for most investors seeking high-income funds.
However, Arbor Realty has a weak balance sheet position. As of Dec. 31, 2024, the company had cash and cash equivalents of $817 million, while total long-term debt amounted to $6.1 billion. Given this, the company might face difficulty in its business during periods of economic stress and market volatility, affecting its capital distribution activities.
Given the concern, ABR’s earnings for 2025 and 2026 have been revised downward over the past month.
Estimate Revision Trend
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Further, volatility in the mortgage market and expectations of economic slowdown will impact its financials in the near term. The declining earnings estimates suggests further downside risk. Hence, investors should approach the ABR stock with caution, as the company’s near-term outlook remains challenging. Also, its expensive valuation warrants caution. At present, ABR carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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