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Here's Why it is Wise to Retain UDR Stock in Your Portfolio Now

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UDR Inc. (UDR - Free Report) is well-poised to benefit from its diversified residential portfolio supported by healthy demand amid favorable demographics. Efforts to leverage technological moves to enhance operational efficiency augur well. Its focus on disciplined capital distribution and a strong balance sheet position is encouraging. However, the elevated supply of residential rental units in some of its markets may affect its rent growth momentum. High interest expenses add to its concerns.

Earlier in March, UDR announced a quarterly dividend of 43 cents on its common stock for the first quarter of 2025, indicating an increase of around 1.2% from the prior quarter. The dividend will be paid out on April 30 to its common stockholders on record as of April 10, 2025.

What’s Aiding UDR?

UDR has a geographically diverse portfolio with a superior product mix of A/B quality properties, including 30% urban and 70% suburban communities in coastal and Sunbelt locations. This diversification limits volatility and concentration risks while aiding the company in generating steady operating cash flows. We expect UDR’s rental income to increase by 2.8% in 2025.

In UDR’s markets, the rise in homeownership costs relative to rents in a high interest rate environment has made the transition from renter to homeowner difficult. Moreover, demographic growth in its markets continues to be encouraging in the young adult age cohort, which has a higher propensity to rent. These factors poise the company well for growth.

UDR is leveraging technological initiatives and process enhancements to bring operational resiliency across its platform, aiding in enhanced customer experience. Such efforts are likely to give it a competitive edge over others and enable it to capture additional net operating income (NOI), driving long-term profitability.

UDR continues to focus on disciplined capital distribution and maintaining a healthy balance sheet position. As of Dec. 31, 2024, UDR had $1.1 billion of liquidity. Also, 87.2% of its NOI is unencumbered, and investment-grade credit ratings of Baa1(Stable) and BBB+(Stable) from Moody's Investors Service and S&P Global Ratings, respectively, enable it to procure debt financing at an attractive rate.

UDR has increased its dividend six times in the last five years, and its five-year annualized dividend growth rate is 4.88%, which is encouraging. Given UDR’s solid financial position, its dividend seems sustainable and well-covered by cash flow from operations. Such efforts boost investors’ confidence in the stock.

Shares of this REIT, carrying a Zacks Rank #3 (Hold), have fallen 6% over the past six months, outperforming the industry’s decline of 7.5%.

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What’s Hurting UDR?

The struggle to lure renters is likely to persist as the volume of new deliveries remains elevated in several markets where the company operates. This is likely to increase competitive pressure, restricting rent growth momentum to an extent.

Despite the Federal Reserve announcing rate cuts late in 2024, the interest rate is still high and is a concern for UDR. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of Dec. 31, 2024 was $5.8 billion. The company’s interest expenses climbed 4.8% to $49.6 million in the fourth quarter of 2024.

Analysts seem bearish on this stock, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share being lowered marginally over the past two months to $2.51.

Stocks to Consider

Some better-ranked stocks from the residential REIT sector are Modiv Industrial, Inc. (MDV - Free Report) and Elme Communities (ELME - Free Report) ,each sporting a Zacks Rank #1 (Strong Buy) and Rank #2 (Buy), respectively, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Modiv Industrial, Inc.’s 2025 FFO per share stands at $1.36, implying year-over-year growth of 1.5%.

The Zacks Consensus Estimate for Elme Communities’ 2025 FFO per share is pegged at 95 cents, suggesting year-over-year growth of 1.1%.

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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