In January 2018, 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 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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