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UDR Inc. (UDR - Analyst Report), a leading multifamily real estate investment trust (REIT), has recently declared a quarterly dividend of 22 cents per share for the third quarter of 2012. The dividend is payable in cash on October 31, 2012, to shareholders of record as on October 10. The current dividend payout will be the 160th consecutive quarterly dividend paid by the company.
The proposed dividend represents a 10.0% year over year increase to that paid in the year-ago quarter. If the current dividend level is maintained for the remainder of the year, the annualized dividend payout of the company would be $0.88 per share. This would equate to a modest year-over-year dividend hike for UDR with a 10.0% increase in dividend for the full year 2012.
UDR is among a select group of companies who have maintained an uninterrupted dividend payout even during the recession, when most companies had suspended the same. Based on the closing price of $25.33, the current dividend yield is fairly decent, at approximately 3.5%.
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 for Equity Residential (EQR - Analyst Report), one of the competitors of UDR.