Collect Rising Dividends From Education Realty Trust, Inc.
Today’s chart highlights one of my favorite income plays in the current stock market: Education Realty Trust, Inc. (NYSE:EDR).
Back in the day, going to college would pretty much guarantee you a job. Now, things are quite different. As more and more students decide to pursue post-secondary education, competition in the job market has gotten intense, even for those with university degrees.
For investors, though, increasing college enrollment over the last several decades has created a major income opportunity: student housing.
You see, most universities today provide housing for just 20% of their students—usually freshmen. Therefore, the rest of the students have to find off-campus housing on their own. And that has created a strong demand for residential properties located near college and university campuses.
Education Realty Trust, Inc. was quick to jump at the opportunity. The company started its business in 1964 and has grown to become one of the largest developers, owners, and managers of collegiate housing communities in the U.S.
High-Quality Portfolio
Today, EDR’s portfolio consists of 70 student housing communities with more than 36,000 beds. They serve 41 university markets located across the country. (Source: “Citi Global Property CEO Conference,” Education Realty Trust, Inc., last accessed May 8, 2018.)
In the real estate business, location is key. And that’s what makes the company’s portfolio so valuable. On average, EDR’s housing communities are located just 0.3 miles from campus.
Those that are looking for student housing usually want to live close to campus, which is why there’s always demand for EDR’s properties.
At the same time, EDR’s portfolio has an average building age of just seven years. Students like newer buildings as they usually come with more modern amenities. Besides, newer buildings typically require less maintenance than older ones, which saves money for the landlord—Education Realty Trust.
Furthermore, EDR has strategically built its communities around high-demand universities. On average, these universities have an application-to-admittance ratio of 1.8 times. More than 80 of EDR’s beds serve universities with over 20,000 enrollment.
The company’s high-quality portfolio has translated into strong operating performance. In 2010, EDR’s portfolio had a same-community margin of 51%. In 2017, the same-community margin had grown to 60%.
To investors, Education Realty Trust’s solid business has created a steadily increasing income stream. The chart below shows EDR stock’s dividend history for the last five years.
Education Realty Trust, Inc. Dividend History
(Source: “Dividend History,” Education Realty Trust, Inc., last accessed May 8, 2018.)
In 2013, EDR declared and paid total dividends of $1.26 per share. In 2017, the amount had grown to $1.54 per share, representing an increase of 22%.
Paying quarterly dividends of $0.39 per share, EDR stock offers an annual yield of 4.6%.
The payout is also safe. In the first quarter of 2018, the company generated core funds from operations (FFO) of $43.7 million, or $0.57 per share. This was more than enough to cover its quarterly dividend payment of $0.39 per share. (Source: “EdR Announces First Quarter 2018 Results,” Education Realty Trust, Inc., April 30, 2018.)
Over the past 12 months, EDR had an FFO payout ratio of 82%, which also left a margin of safety.
For investors who want to earn an increasing income stream from the real estate sector, this student housing REIT deserves a serious look.