At a time when median rent declines are starting to make the news, it might seem like a terrible move to invest in any of the many housing real estate investment trusts (REITs) out there. Although the decline of rents across the nation has been greatly exaggerated, with only 10% of the metro areas surveyed by Rent.com actually showing year-over-year price declines, many housing REITs are still plugging along just fine.
UMH Properties (UMH -1.06%) is one of them. This particular housing REIT focuses exclusively on affordable housing in the form of off-site built homes. The company operates mobile home parks and sells mobile homes to residents who then rent the land they’re sitting on back from the company. Considering how many people struggle to afford Class A apartments these days, it’s no wonder that UMH continues to deliver on the dividends.
NYSE: UMH
Key Data Points
UMH Properties Has a History of Dividend Delivery
UMH stock price has been down since April, but that really hasn’t affected anything about the business itself. It’s been a reliable dividend payer since 1990, and although it had to cut dividends in 2008, since that time, the dividend has continued to climb. The current dividend sits at $0.20 quarterly per share, giving a decent yield of 4.43%.
Although UMH has missed earnings since Q1 2022, it continues to make smart moves that are bringing in money to the company regardless of earnings predictions in an overall highly volatile real estate market that’s trying to become a widowmaker for many in the wider industry. Because the company is still bringing in ample income, it’s still delivering on the dividends.
UMH Continues to Grow Despite the Wider Market
While home builders and mortgage companies are starting to show signs of trouble, UMH continues to battle on. In fact, it’s growing. It added five new communities across its service area, as well as almost 1,300 new rental units (a 3.4% gain) in Q3 2022 versus Q3 2021.
These new units, both rental sites and homes with site rent included, have provided additional income in the form of rental increases. For lots, rental prices are up 4.7% yoy, and for homes, it’s 5.6% yoy. Although occupancy rates are down slightly, 1.3% and 0.8%, respectively, the increase in units and rental rates have more than made up for this loss, allowing dividend payouts to continue at a generous pace.
New Opportunity in Opportunity Zones
Perhaps most intriguing this quarter for dividend lovers is the investment that UMH is making in Opportunity Zones. The company already knows who its target market is, and it’s not afraid to find more ways to buy the kinds of properties it knows it can make profitable. By investing $8 million in the new UMH qualified opportunity zone fund, UMH will be able to acquire additional housing developments with lower tax liability the longer it holds the property.
In addition, that $8 million that has been put into the fund could be eligible for additional tax deferment on any capital gains that may have been realized from selling properties, should UMH have met all the requirements. Knowing that they have been strategically rearranging properties for some time, I can only assume they have taken full advantage of what this opportunity represents.
Will UMH Make Earnings Targets in Q4?
It’s impossible to predict if UMH will hit its earnings goal in Q4. The overall economy is not behaving in a way that’s making much of anything in the real estate world readily predictable, and the real estate market is definitely showing signs of significant pain in different sectors. I think this makes predicting earnings for a REIT like UMH very difficult, since it doesn’t deal in the kind of real estate most people think of when they think of REITs.
But the truth is that it really doesn’t matter if it meets consensus earnings goals or not, because it’s continuing to make money and delivering on dividends for investors. This is a company that knows how to survive a hard economy, and it did that very thing in 2008. With the new opportunity zone fund, it has positioned itself to take advantage of any rocky economic conditions that may come in 2023. I have no doubt that in 10 years, we’ll all be glad that we bought this stock.
