E AvalonBay Communities: Undervalued REIT Yielding 4%

While companies with long histories of dividend growth, such as the Dividend Aristocrats, tend to get the most attention from dividend growth investors, each name in that index had to begin their dividend growth streak at one year. They then had to continue to grow its distribution every year before they qualified for membership in a dividend growth index.

It is for this reason that we also monitor stocks with shorter dividend growth streaks. Companies with at least five years of dividend growth are called Dividend Challengers. Dividend Challengers broadly have a strong business model, solid prospects for future growth, and a commitment to dividend growth.

One Dividend Challenger we think has a good chance to join the best-of-the-best dividend growth stocks is AvalonBay Communities Inc. (AVB).

Company Background & Growth Potential

AvalonBay Communities is a multifamily real estate investment trust (REIT). The trust has 270 apartment communities containing more than 73,500 units. AvalonBay Communities is also in the process of develop 18 additional properties that will have more than 7,200 units. The trust was formed by the 1998 merger of Avalon Properties with Bay Apartment Communities. AvalonBay Communities trades with a market capitalization of almost $22 billion and generated revenue in excess of $2.3 billion in 2019.

AvalonBay Communities’ key competitive advantage is that it focuses on owning and developing top-tier properties in major metropolitan areas such as New England, New York/New Jersey, Washington D.C., California, and the Pacific Northwest.

Owning properties in densely populated areas of the country gives the trust a rather large pool of potential customers, which helps to ensure that its units are mostly occupied.

The trust’s most recent earnings report is evidence of this strength. Despite the immense and unprecedent headwinds from the COVID-19 pandemic, AvalonBay Communities had 93.1% of its units occupied, which was just a slight decrease from the previous year. Average rental rates were more than $2,600 per unit, a 3.4% decrease from the previous year. Given the circumstances of the current operating environment, it is surprising that the occupancy and average rental rates weren’t lower.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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