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Capitalize on Weak Housing Market with AvalonBay

Tuesday, 17 May 2011 01:39 PM

During the past few weeks, numerous economic statistics released by government agencies in the United States, Europe, and the world’s major emerging economies of Brazil, China, and India suggest that economic growth in those countries will slow considerably during the remainder of this year.

Meanwhile, numerous other statistics indicate that the housing market in the United States will remain weak for at least another 12 months.

Separately, the fact that a huge number of adjustable rate mortgages are scheduled to reset at higher rates during the next couple of months indicates that bank foreclosures of homes will increase during the months ahead and that home prices will decline further once those foreclosed homes are added to the glut of homes for sale.

Make 12.3% Without Touching Stocks, Bonds, or CDs . . .
In light of the fact that several other economic statistics indicate that the employment situation in the United States will remain weak through the end of 2012 and that banks will likely tighten their home lending standards during the next few years, my experience suggests that an increasing number of Americans will be forced to rent a home until the employment situation improves considerably.

Although stocks of publicly traded homebuilders will likely remain at distressed levels under the type of scenario described above, developers and operators of residential rental properties likely will flourish. One such company is AvalonBay Communities Inc.

AvalonBay (AVB) is a real-estate investment trust (REIT) that develops, renovates, acquires, owns, and operates multifamily communities in the United States. The company specializes in providing luxury living in high-demand areas where apartment-zoned land is in low supply. All of the company’s properties are located in or near major metropolitan areas, including Boston, New York City, Chicago, San Francisco, Washington, D.C., and Los Angeles.

As of Jan. 31, 2011, AvalonBay owned approximately 170 apartment communities with more than 50,000 residences featuring the following amenities:

• Fully-equipped kitchens and modern appliances

• Walk-in closets

• Lofts and vaulted ceilings

• Fireplaces

• Patios and decks

• Swimming pools

• Fitness centers

• Tennis courts

• Wi-fi lounges

After experiencing a downturn during 2009 as a result of the December 2007 to June 2009 economic recession, AvalonBay increased both its revenues and earnings per share during each of the past two quarters.

The company is strong financially and has consistently generated substantial cash flows from its operating activities.

Cash dividend

In addition to growing its revenues and earnings at a healthy pace over the past 10 years, the company has consistently paid a cash dividend, with its annual dividends rising to $3.57 per share during the current year from $2.48 per share during 2001. As of May 16, 2011, AvalonBay’s dividend was yielding approximately 2.81 percent on an annualized basis.

With my research indicating that the big price increases that occurred during the past two years in cyclical and growth stocks is nearing an end, now might be a good time to invest in a dividend-paying stock like AvalonBay that also offers the opportunity for capital appreciation.

About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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