Dividend Aristocrats In Focus: Essex Property Trust

Essex Property Trust (ESS) isn’t necessarily a household name when it comes to brands, but the real estate investment trust, or REIT, has produced very impressive growth in the past two decades. The trust has managed to produce a soaring share price and rapidly increasing dividends since its IPO in 1994, and today is worth just over $20 billion.

Last year marked the 25th consecutive year Essex boosted its dividend payment, making it one of seven stocks that are new to the prestigious  Dividend Aristocrats, a group of S&P 500 stocks with at least 25 consecutive years of dividend increases.

That list is now up to 64 companies that have proven to investors they can pay – and increase – their dividends in any economic climate. That characteristic is unusual for REITs, so Essex has set itself apart from the herd.

Essex struggled during the Great Recession of 2008-2009, which took a sizable toll on its funds-from-operations. However, since the bottom in 2010, FFO has risen by a compound annual growth rate of 11.5%. This has afforded Essex a higher share price, as well as the ability to continue to raise its payout.

Unfortunately, this excellence has been recognized by the market, and Essex shares look somewhat overvalued today. The stock’s dividend yield isn’t overly attractive either, coming in at just 2.5%.

With the valuation and dividend essentially offsetting each other, as well as a modest 4% annual FFO-per-share growth projected, we think this Dividend Aristocrat needs a pullback before it is worth considering.

Business Overview

Essex is a Real Estate Investment Trust, or REIT. It started out in 1971 as a small real estate company, and eventually went public in 1994. At that time, Essex had grown to 16 multifamily communities as a fully integrated REIT that acquires, develops, redevelops, and manages multifamily apartment communities located in supply-constrained markets.

Today, Essex is concentrated on the West Coast of the U.S., including cities like Seattle and San Francisco.

(Click on image to enlarge)

ESS Overview

Source: Investor Presentation, page 2

Essex is present in Washington and California, two states with high population concentrations and housing shortages, particularly in desirable seaside cities. The trust is only present in eight markets, but it has identified the best ones with high barriers to new supply, which is key for pricing strength and occupancy over the long-term.

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