UDR Inc. ( UDR ), a leading multifamily real estate investment trust (REIT), has recently increased its quarterly dividend from 20 cents per share to 21.5 cents for the fourth quarter of 2011, payable in cash on January 31, 2012 to shareholders of record as on January 11, 2012. The recent dividend payout will be the 157th consecutive quarterly dividend paid by the company.
UDR had earlier increased its dividend in the second quarter of 2011 from 18.5 cents to 20 cents. UDR is among a select group of companies to have maintained an uninterrupted dividend payout even during the recession, when most companies have suspended the same.
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 #2 Rank that translates into a short-term 'Buy' rating. We also have a long-term 'Neutral' recommendation and a Zacks #3 Rank (short-term 'Hold' rating) for Equity Residential ( EQR ), one of the competitors of UDR.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.