AvalonBay is a REIT firm that primarily owns and operates apartment buildings. It has ownership or an interest in nearly 300 apartment communities in over 10 states throughout the country. The real estate firm has 14 communities under construction with nearly 30 new developments in the works. The primary markets for the apartments are in the New York region, California, Pacific Northwest, and the Midwest. The firm was founded in Virginia in 1978.
AvalonBay has maintained a solid three-year growth rate of dividends of 7 percent. AvalonBay currently ranks 8th in dividend yield within the large cap REIT-Residential category. The quarterly dividend for the April payment will be $1.42 versus the prior year rate of $1.35 per share. AvalonBay is a member of our Top 100 Dividend Stocks. (see below).
The dividend will be paid at the new higher rate on April 17, 2017, to shareholders of record at close of business on March 31, 2017. AvalonBay Communities Inc. is currently priced at $178.50. Listed in the table below are the quarterly dividend payments since 2010.
Analysis of AvalonBay is based upon our five key criteria for the Top 100 list, which include;
|Dividend Growth (3-7 year avg)||7%||271|
|S&P Financial Rating||A-||120|
|% Yield||3 Year Div. Growth Rate||7 Year Div. Growth Rate||FFO 2016||P/FFO Ratio||10 yr P/FFO Low||10 yr P/FFO High||5 yr low Yield %||5 yr max Yield %|
- AvalonBay’s dividend yield is above that of the S&P 500 Index.
- AvalonBay has paid out a dividend consecutively for the past 19 years.
- AvalonBay maintains an investment grade rating of A-.
- AvalonBay has maintained a three-year growth rate of dividends of 7 percent.
- AvalonBay’s current dividend yield (3.18%) is above its five-year average historical dividend yield.
- AvalonBay maintains a beta of 0.75, lower than the average company.
- AvalonBay is trading below its ten-year average price/funds from operations (P/FFO) ratio.
Latest Earnings & Overall Analysis:
AvalonBay issued its earnings data on February 1st. The company reported Q4 funds from operations (FFO) of $2.12 per share compared to $1.97 of the same quarter in 2016. The FFO per share exceeded the average consensus estimate of $2.10. The FFO results were 6% higher than the year ago Q4 period. Net operating income growth was strong for the quarter as several new developed projects came on board. Total revenue rose by nearly 8% year over year to $518 million, which was $2 million above consensus numbers.
The nice increase in both FFO and total revenue was due to increased rental rates, which rose by over 3% from 2015. The largest increase in rental rates came from the West Coast. All regions, with the exception of the complexes in North California, were up over 5% on a year-over-year basis.
As for future expectations, AvalonBay projected FFO per share in the range of $2.09–$2.15 for Q1 of 2017 and $8.59–$8.99 range for the entire year. These estimates are within consensus estimates. Growth in FFO is expected to come from $500 million of new developments to be finished in 2017. Management has indicated that the REIT will earn an average initial yield of 6.7% on these projects. Additionally, the $1.3 billion in new projects started in Q4 2016 will also pay strong yields upon completion. There were five new projects initiated in Q4, which includes two on the East Coast and three out west.
AvalonBay has strong REIT properties and development in positive demographic areas that offer higher rents and more growth. It is well diversified in the U.S. with properties both in the east and west coasts. Management has commented that demographics play a large roll on where they build and the confidence that the REIT firm can meet its FFO growth through the next several years. Young adults, or those under the age of 35, are anticipated to grow by nearly 600,000 next year. With the unemployment rate below 5% along with job growth per year at near the same rate, it points to a compelling need for new apartments.
The only risk is the apartment sector is rapidly advancing construction and a risk of supply glut could make the company vulnerable to rate increases. However, overall the firm stands out as a leader in the REIT apartment space. The firm has solid financials. AvalonBay has $230 million in cash on the balance sheet while its debt/equity ratio is among the lowest in the industry. The dividend is up by 66% over the last seven years while the annual growth rate is over 7% per year. In the last 23 years, the REIT has consistently grown its dividend by over 5% per year, through both poor and great economic periods.
Based on the firm’s consistent dividend growth history, above average yield, low beta, and investment grade credit rating, AvalonBay Communities Inc. qualifies as one of our Top 100 Dividend Stocks.
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AvalonBay Communities Inc. Dividend Yield Historical Chart (Click to enlarge)
Chart Explanation: Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years.