UDR Inc.(UDR), a leading multifamily real estate investment trust (REIT), has recently increased its quarterly dividend from 21.5 cents per share to 22 cents for the first quarter of 2012, payable in cash on April 30, 2012 to shareholders of record as on April 9, 2012. The recent dividend payout will be the 158th consecutive quarterly dividend paid by the company.
UDR had earlier increased its dividend in the fourth quarter of 2011 from 20 cents to 21.5 cents and from 18.5 cents to 20 cents in second quarter 2011. UDR is among a select group of companies who have maintained an uninterrupted dividend payout even during the recession, when most companies have suspended the same, and even hiked it on several occasions.
A steady dividend payout facilitates the long-term strategy of UDR to provide attractive risk-adjusted returns to its stockholders. The company has also historically promulgated a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the company by reinvesting some or all of the cash dividends received on the common shares.
Investors looking for high dividend yields are increasingly favoring REITs like UDR. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders.
UDR is among the best-positioned multifamily apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rent vs. ownership spread remains high. The housing meltdown will continue to help apartment REITs like UDR and we expect this sector to remain comparatively stable in the coming quarters as well.
Furthermore, UDR has a geographic diversification that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of the earnings. UDR has also continuously upgraded the overall quality of its portfolio by selling smaller market, older properties and replacing them with newer assets in better long-term markets. This provides an upside potential for the company.
We maintain our ‘Neutral’ recommendation on UDR for the long term, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a long-term ‘Neutral’ recommendation and a Zacks #3 Rank forApartment Investment & Management Co.(AIV), one of the competitors of UDR.
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