Should Dividend Investors Chase Apartment REITS? (EQR, AVB, UDR, CPT)

A real estate investment trust publication from NAREIT shows that apartment REITs have performed exceptionally well and that there is room to grow.  The report showed that new multifamily housing construction was at a 20-year low, with pent-up demand for apartments at about triple the normal level.  NAREIT’s take is that the imbalance is expected to support apartment REIT fundamentals beyond 2012 with a 2.5 million unit supply-demand shortfall.  What we wanted to know is whether or not dividend investors should be chasing these stocks.

Equity Residential (NYSE: EQR) is about 10% under its 52-week high and it yields about 4% with a $17 billion market cap.  AvalonBay Communities, Inc. (NYSE: AVB) is only about 7% under its 52-week high and it yields only 2.7% for its $12.4 billion market cap.  UDR, Inc. (NYSE: UDR) is down about 8% from its 52-week high and it has a yield of 3.4% with a $5.5 billion market cap.  Camden Property Trust (NYSE: CPT) is down about 10% from its 52-week high with a 3.2% yield and a $4.9 billion market cap.

NAREIT noted, “Squeezing off the construction pipeline for four years, on its own, has produced a shortfall of more than 500,000 apartment units relative to the number that would be needed just to satisfy the demand produced by normal population growth over that period.  However, there is nothing normal about the demand scenario for apartment units that will come into play as the economy continues to recover, accelerating the job growth we are beginning to see now.”

Our own take is that the thesis in apartment REITS has been, is currently, and will be fundamentally sound.  For investors looking for solid REIT gains and higher yields, we would stick with the dividend payers in our 2012 Model Dividend Portfolio. We’ll leave the ultimate decision up to you.

JON C. OGG

NAREITs FULL REPORT