Can a Double-Digit Yield Be Safe?
In December 2017, I looked at the dividend safety of Apollo Commercial Real Estate (NYSE: ARI).
Back then, SafetyNet Pro and I determined that the 9.8% yield was safe. The stock received an “A” rating because the company generated plenty of net interest income (NII).
A reader requested that I revisit Apollo Commercial Real Estate, his interest likely sparked by my recent recommendation of the stock in the July issue of The Oxford Income Letter.
Apollo Commercial Real Estate is a mortgage real estate investment trust (REIT). It borrows money short term and lends it out longer term at higher rates. The difference between the two, minus expenses, is NII.
NII is the measure of cash flow that we use to determine if a mortgage REIT can afford its dividend.
Apollo’s NII has been moving straight up.
In 2014, Apollo’s NII was just $97 million. It climbed all the way up to $289 million last year and is forecast to soar to $342 million in 2019.
The rising NII has made it easy for Apollo to pay its dividend. Last year, it paid out $254 million to shareholders.
The company has paid a dividend since 2010. It has never been cut.
While Apollo Commercial Real Estate is not a Perpetual Dividend Raiser (it has raised the dividend three times in nine years, the last time in 2015), I wouldn’t be surprised if management lifts the dividend again in the near future.
What would shock me is a dividend reduction.
Apollo Commercial Real Estate is growing its cash flow, pays out less cash in dividends than it brings in and has a strong dividend-paying track record.
Out of nearly 800 stocks, Apollo Commercial Real Estate is the only double-digit-yielding stock rated “A” by SafetyNet Pro.
Dividend Safety Rating: A
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About Marc Lichtenfeld
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. He captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.