A High-Yield Real Estate Stock to Think About
In today’s low-yield environment, I doubt anyone would complain about earning an annual dividend yield of nine percent.
But Ares Commercial Real Estate Corp (NYSE:ACRE) is willing to dish out even more.
On May 4, the company declared a regular cash dividend of $0.33 per share for the second quarter of 2021. With ACRE stock trading at $14.62 per share, that quarterly payout comes out to an annual yield of just over nine percent. (Source: “Ares Commercial Real Estate Corporation Reports First Quarter 2021 Results,” Ares Commercial Real Estate Corp, May 4, 2021.)
At the same time, Ares Commercial Real Estate declared a supplemental cash dividend of $0.02 per share. This supplemental dividend—along with the regular dividend—will be paid on July 15 to shareholders of record as of June 30.
In other words, the company is giving investors “bonus checks” on top of its already-generous regular dividends.
Mind you, it’s not the first time for ACRE stock investors to receive bonus checks. In Ares Commercial Real Estate’s previous dividend announcement in February 2021, the company did the exact same thing: declared a regular dividend of $0.33 per share and a supplemental one of $0.02 per share. Both dividends were paid on April 15. (Source: “Dividends,” Ares Commercial Real Estate Corp, last accessed May 7, 2021.)
Ares Commercial Real Estate originates and invests in commercial real estate loans and related investments. It provides flexible financing solutions to owners and operators of commercial real estate. And because this specialty finance company chooses to be regulated as a real estate investment trust (REIT), it’s required by law to distribute at least 90% of its profits to investors.
Of course, due to the COVID-19 pandemic, the commercial real estate sector took a big hit about a year ago. Those who have been following the sector would know that plenty of REITs cut their dividends last year.
But Ares Commercial Real Estate Corp was not one of them. The company’s regular quarterly dividend was $0.33 per share before the pandemic, and it has been maintained at $0.33 per share to this day.
And if you factor in those bonus checks, you’ll see that ACRE stock is actually paying more cash to investors now than prior to the pandemic.
At this point, you may be wondering whether the company can actually afford this level of payout.
Well, in 2020, Ares Commercial Real Estate generated distributable earnings of $1.36 per share. For the year, the company paid four quarterly dividends totaling $1.32 per share. So it was able to cover its payout in 2020. (Source: “Ares Commercial Real Estate Corporation Reports Fourth Quarter and Full Year 2020 Results,” Ares Commercial Real Estate Corp, February 18, 2021.)
In the first quarter of 2021, the REIT’s distributable earnings came in at $0.40 per share. As mentioned earlier, ACRE stock paid both a $0.33-per-share regular dividend and a $0.02-per share-supplemental dividend for the first quarter. So the total payout was still covered by the company’s distributable earnings.
Regarding the performance of Ares Commercial Real Estate’s investment portfolio, the company’s chief financial officer, Tae-Sik Yoon, said, “Supported by improving real estate market fundamentals, our portfolio continues to perform well with no new loans on non-accrual status and 100% of contractual interest payments collected during the first quarter.” (Source: Ares Commercial Real Estate Corp, May 4, op. cit.)
Management also expects the REIT’s distributable earnings to “meet or exceed” its payout this year, including the supplemental dividends.
Bottom Line on Ares Commercial Real Estate Corp
In today’s market, higher-yielding stocks often come with higher risk regarding dividend safety.
Ares Commercial Real Estate Corp stands out because of its resilient and special dividends. For yield hunters, ACRE stock deserves a look.