Inflation is running hot. The consumer price index for January came in at 7.5%, the highest reading since 1982. Geopolitical conflict will also put pressure on the cost of energy, which could keep inflation elevated for the near future.
If we are going through an extended period of higher inflation, it would be prudent to give dividend stocks a spot in your portfolio. According to research from Fidelity, dividends have accounted for 40% of the stock market's total return since 1930. And during inflationary times, dividends accounted for an even larger share of market returns. In the inflationary decades of the 1940s and 1970s, dividends accounted for 65% and 71%, respectively, of the S&P 500's total returns.
Two high-yield dividend stocks you can add today are Arbor Realty (ABR 1.12%) and New York Community Bancorp (NYCB).
1. Arbor Realty: 7.78% dividend yield
Arbor Realty Trust is a real estate investment trust (REIT) that provides loans, focusing on multifamily housing. REITs combine real estate investments with stock investments, making property investing available to more investors.
REITs are exempt from income taxes provided they pay out 90% of their taxable income to shareholders in the form of dividends every year. Because of this tax structure, REITs can offer attractive dividend yields. However, REITs are treated as nonqualified dividends -- meaning investors must pay taxes on them -- so they are better held in tax-advantaged individual retirement accounts (IRA).
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Arbor Realty focuses on multifamily housing because it tends to remain more stable in a variety of market cycles. That's because housing is essential and will always be in demand.
Arbor Realty mainly provides bridge loans to buyers of multifamily properties with short-term financing. In 2021, $10.8 billion of its loans -- 89% of its total loans and investment portfolio -- were bridge loans on multifamily properties. These loans are made to borrowers who buy a property and improve its value quickly, often through renovation. These borrowers can then use proceeds from a conventional mortgage to repay the bridge loan.
For Arbor Realty, these loans have a weighted average maturity of 24 months. This short duration could benefit Arbor Realty as interest rates begin to rise. That's because it doesn't lock in low interest rates for an extended time, and the company will be able to take advantage when rates do eventually increase.
Over the past five years, Arbor Realty has had stellar growth. Its structured portfolio has grown 47% compounded annually. Meanwhile, its net interest income has increased by 36%, compounded annually. Arbor Realty yields about 8%, so investing $37,000 in the multifamily REIT could make you $2,960 in passive income annually.
2. New York Community Bancorp: 5.85% dividend yield
New York Community Bancorp is a regional bank with about 237 branches. Like Arbor Realty, New York Community Bank specializes in multifamily loans in New York City, specifically non-luxury residential apartment buildings. Multifamily loans make up $25.8 billion of its total loans, or about 82%.
The bank is currently transforming under its Chief Executive Officer Thomas Cangemi. Part of this transformation focuses on lower-cost and stickier deposits, as well as a diversified loan mix. Deposits grew 8% last year as the bank deployed its deposit strategy.
One part of this strategy includes expanding its banking-as-a-service (BaaS) initiative. BaaS is a global movement that allows non-banks to embed their financial products into a bank's systems. BaaS provides an excellent opportunity for banks to grow deposits cheaply while embedding the bank's services within financial technologies.
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According to researchers at Oliver Wyman, a subsidiary of Marsh & McLennan, the cost of acquiring a new customer can range from $100 to $200. However, with BaaS technology, that cost ranges from $5 to $35. For New York Community Bank, BaaS deposits are up to $1 billion but still represent a small portion of its total deposits of $35.1 billion.
The bank sees the New York City residential market bouncing back as the pandemic eases, with strong demand outpacing supply. This drove record loan growth in the fourth quarter, which propelled solid annual gains for the bank last year. Loans increased 7% year over year while the bank posted its highest diluted earnings per share (EPS) since 2005.
The bank has paid a high dividend for a decade now, with a 10-year average yield of 6.14%. It also has a payout ratio of 44%, suggesting the bank shouldn't have any problem maintaining this dividend. With a current yield of 5.85%, investors putting $37,000 in would get back $2,165 in annual income.
