UDR Hikes Q1 Dividend - Analyst Blog

Ushering in good news for its stockholders, the apartment real estate investment trust (REIT) – UDR Inc. UDR – declared a 10.6% hike in its first-quarter 2014 cash dividend rate. The company will now pay a dividend of 26 cents per share for first-quarter 2013, up from 23.5 cents paid in the prior quarter. The increased dividend will be paid on April 30, 2014 to stockholders of record on April 9.

The announced dividend will represent the company's 166^th consecutive quarterly dividend payment. Based on the current dividend rate, the 2014 annual dividend rate comes to $1.04 per share, 10 cents above the 2013 annual dividend of 94 cents per share. As a matter of fact, the new dividend rate results in an annualized yield of 4.1% based on UDR's closing price of $25.17 on March 19.

Going forward, we believe that the rising apartment demand generated by ‘echo boomers' – children of the baby boomer generation – offers UDR ample growth opportunities. Furthermore, the company's focus on allocating its capital efficiently and improving cash flow is encouraging. Such efforts are expected to fortify its balance sheet and enhance shareholder returns going forward too. As of Dec 31, 2013, UDR's liquidity amounted to $930 million in a combination of cash and undrawn capacity on its credit facilities.

Last month, UDR reported fourth-quarter 2013 FFO (funds from operations) as adjusted of 35 cents per share, which was flat year over year but missed the Zacks Consensus Estimate by a penny. Increase in same-store revenues and net operating income were the positives. However, higher operating expenses acted as a headwind.

In addition to UDR, a number of other REITs have increased their dividend payouts in recent times. This includes Taubman Centers Inc. TCO that hiked its quarterly dividend by around 8% sequentially to 54 cents per share from 50 cents. Moreover, Prologis Inc. PLD announced almost an18% increase in its quarterly dividend rate to 33 cents per share from 28 cents.

Solid dividend payouts are arguably the biggest attraction for REIT investors since the U.S. law requires these companies to distribute 90% of their annual taxable income in the form of dividends to shareholders.

UDR currently carries a Zacks Rank #2 (Buy). Another apartment REIT worth considering is BRE Properties Inc. BRE, having the same rank as UDR.

Note: Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.