Is This High-Dividend-Yielding Stock Worth an Investment?
Inflation is a concern for any long-term investor, since it decreases the purchasing power of a currency. The best method for protecting capital from inflation is to own an investment which grows as time passes. And one of the better sources of growing investments is the commercial real estate market.
That’s why you may wish to consider Apollo Commercial Real Estate Finance Inc. (NYSE:ARI), a real estate investment trust (REIT) which is also offering a high dividend yield. Apollo originates, acquires, owns, and manages commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities, and other forms of commercial loan investments.
All of Apollo’s loans and investments are based in the United States, hence its status as a REIT. Being a REIT means the company is not required to pay federal income tax to “Uncle Sam,” provided it gives at least 90% of its income to shareholders. In addition, three-quarters of each dollar invested must be put towards real estate-related assets. This ensures that investors are aware of what they own and the company focuses on specific assets that do not distract from its business plan.
Below is further reason to consider ARI stock.
Growing Payout
Every so often, management reviews the dividend policy to ensure that the revenue covers the current payment, as well as to determine if a higher payout is possible. Since 2010, the dividend has gone from an annual $1.40 per share to $1.84 for an overall increase of 31% and an average annual increase of 4.5%. This actually outpaces the inflation rate, which is an average of three percent.
Looking forward, the dividend could continue to increase at the same rate, if not higher, because of the company’s focus on growth. For example, debt is being used for internal growth, but it is being managed well. Apollo also doesn’t hesitate to refinance at a lower rate when the opportunity arises. This increases the cash flow of the business immediately and reduces the debt obligation.
nattanan23/Pixabay
Apollo also employs a spread, since the debt, after use, is then given to many other investors for their commercial real estate needs. A spread occurs because there is a higher interest rate being paid by the borrower of the funds when compared to what is paid by Apollo. Therefore, the business’ interest costs are more than covered.
In this case, when there is a refinancing, there are higher margins being accounted for. And when interest rates increase, it will impact outstanding loans, though margins will remain the same.
Lastly, Apollo’s margins are among the highest in the industry.The company’s profit margin–the percentage of revenue left after business costs–is 71.9%, while the industry average is 24%. That’s three times the amount kept within the company compared to a quarter for the industry; needless to say, this is reflected in the dividend.
Final Thoughts About ARI Stock
ARI stock is an example of an investment that is protected from inflation. This protection should be apparent in the growing dividend and stock price.
ARI stock is currently offering a yield of 10.3%, going by the trading price of $17.95. This double-digit yield is more than five times the average dividend yield of 1.9% of the S&P 500 Index.
Also Read:
5 High-Dividend-Yielding Stocks to Consider in 2017
5 Cheap High Dividend Stocks for 2017