Arbor Realty Trust (NYSE:ABR) is a real estate investment trust (REIT) that is seeing a lot of interest in 2018. ABR stock is up 36% year to date and 42% for the past 12 months. That shows how much of a difference there is between last year and this year.
Last year, most of the worries in the real estate sector were about how fast the Federal Reserve would raise rates and how strong the economy was. The concern was, if the Fed raised rates too aggressively, it would kill the economic recovery and real estate would wither.
But the major corporate tax cut and solid earnings and economic numbers have given the real estate sector some optimism. On the residential side, housing demand is outstripping supply, so prices are rising. That’s good for sellers, but this will end up being a challenge as prospective buyers are paying more for mortgage rates as well as houses.
The Strength of ABR Stock
This doesn’t matter to ABR because it focuses on commercial real estate. But it gets even better. ABR doesn’t own the properties but originates commercial loans for multifamily housing, senior housing, healthcare and other commercial projects.
As an REIT, its shareholders are viewed as owners and 90% of its income has to be distributed to its owners. Like most REITs, ABR does this by distributing the income via a dividend.
And it’s a very nice dividend — currently it’s sitting around 8.5%.
So, the stock is up more than 30% in 2018 and you get an 8.5%-plus dividend. That is some pretty solid performance from any stock, much less a button-downed REIT.
And the thing is, the economy is moving in ABR’s direction. The sectors it focuses its business in have significant long-term potential. The multifamily housing sector is growing because millennials are carrying a lot of student debt, so they don’t have the savings or cash flow to buy a home as soon as earlier generations could.
Also, having grown up in the middle of the financial crisis, they saw that the long-held belief that houses were a great store of wealth was as much as illusion as anything else. Renting and enjoying life have become bigger priorities.
Senior housing is a megatrend. Even if you consider that baby boomers can access more home healthcare, the fact is, their houses get too big and their expenses become too high. Downsizing into a senior community is becoming a much more popular choice. Building and expanding these services will continue for decades.
Healthcare properties are seeing a boom as hospitals and healthcare insurance firms are seeing the value in decentralizing operations and building focused treatment facilities that can be more efficiently managed.
And to top it all off, as interest begins to rise, ABR will be able to leverage its lending even more, especially as the economy continues to improve.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.