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Is Mid-America's (MAA) Latest Dividend Hike Sustainable?

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Mid-America Apartment Communities’ (MAA - Free Report) , also known as MAA, board of directors recently approved an increase in the company’s quarterly dividend payout. The company will now pay $1.25 per share, which reflects a hike of 15% from the prior dividend of $1.0875.

Based on the increased rate, the annual dividend comes to $5.00 per share, denoting an increase of 65 cents per share from the prior dividend level. At this new rate, the annualized yield comes at 2.83%, based on the stock’s closing price of $176.55 on May 17. The new dividend will be paid out on Jul 29 to shareholders of record as of Jul 15, 2022.

Solid dividend payouts are arguably the biggest enticements for REIT shareholders and MAA remains committed to that. The company has a good track record of paying dividends to its shareholders and the recent hike reflects MAA’s ability to generate solid income through its operating platform and a high-quality portfolio.

In December 2021, the company announced a common stock cash dividend of $1.0875 per share, which marked a 6.1% sequential hike and the 12th consecutive annual increase in the company’s dividend.

In addition, with the expected 2022 funds from operations (FFO) per share growth of 15.74%, ahead of the industry’s average of 12.14%, the increased dividend is likely to be sustainable.

MAA maintains a well-balanced, diverse portfolio across the Southeast and Southwest regions of the United States. The portfolio is diversified in terms of markets, submarkets, product types and price points. This diversification shields the company from an economic downturn in any particular market, choppiness in any product type or assets belonging to specific price points and helps generate a consistent revenue stream.

MAA’s diversified Sunbelt portfolio of suburban-focused communities was less severely affected by the pandemic and the economic shutdown. The pandemic accelerated employment shifts and population inflow into the company’s markets as renters sought more business-friendly, lower-taxed and low-density cities. These favorable longer-term secular dynamic trends are increasing the desirability of its markets. Amid this, MAA is poised to capture recovery in demand and leasing compared with the expensive coastal markets.

MAA enjoys a solid balance sheet, with low leverage and ample availability under its revolving credit facility. As of Mar 31, 2022, $1.0 billion in combined cash and capacity was available under its unsecured revolving credit facility. It generated 95.2% unencumbered net operating income in the first quarter of 2022, providing scope for tapping additional secured debt capital if required. Hence, with manageable near-term maturities and funding obligations, the company is well-positioned to bank on growth scopes.

Over the past year, shares of Zacks Rank #3 (Hold) MAA have rallied 13.4%, outperforming the industry’s growth of 2.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Key Picks

Some better-ranked stocks from the residential REIT sector include Camden Property Trust (CPT - Free Report) and Independence Realty Trust, Inc. (IRT - Free Report) .

The Zacks Consensus Estimate for Camden Property Trust’s ongoing-year FFO per share has moved marginally north to $6.47 over the past month, suggesting an increase of 20% year over year. Currently, CPT carries a Zacks Rank of 2 (Buy).

Independence Realty Trust holds a Zacks Rank of 2 at present. The Zacks Consensus Estimate for IRT’s 2022 FFO per share has been revised marginally upward in a week to $1.05.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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