Most investors get into real estate to generate some passive income. Unfortunately, many options require that they play an active role. That's certainly true of owning an apartment building since being a landlord involves a lot of work.
However, there is an easier way to enjoy those same passive income benefits without all the work: Invest in an apartment real estate investment trust (REIT). Three great, buy-worthy options to consider this month are Camden Property Trust (NYSE: CPT), Mid-America Apartment Communities (NYSE: MAA), and UDR (NYSE: UDR).
The best of the best
Camden Property Trust is one of the safest REITs to buy. It's in a three-way tie with AvalonBay Communities (NYSE: AVB) and Equity Residential (NYSE: EQR) for having the highest credit rating among apartment REITs, with its A-rated credit putting it in an elite group of REITs.
Meanwhile, it operates in 14 major U.S. markets, including several in the fast-growing Sunbelt region. That makes it a bit more geographically diversified than those two larger peers, which focus mainly on gateway cities like New York, San Francisco, and Boston. That's worth noting since those markets are under more pressure due to the impact of COVID-19. Because of that factor, Camden's occupancy and rental rates have held up a bit better this year.
Camden's focus on fast-growing markets has paid dividends over the years as the company's cash flow and cash payout have risen steadily, with the former expanding at a faster pace than the latter. Add that to its credit and portfolio quality, and its 3.7%-yielding dividend is on rock-solid ground. Meanwhile, that payout should continue growing in future years as Camden uses its financial flexibility to acquire and develop additional communities.
Sunbelt-focused apartment living
Similar to Camden, Mid-America Apartment Communities focuses on fast-growing regions like the Southwest, Southeast, and mid-Atlantic. Those geographies have held up much better than major gateway cities during COVID-19, where high rental rates are driving renters working from home to cheaper areas. That's evident in the REIT's strong rental collection rates of 99% during the second quarter and more than 98.5% through the early part of the third quarter and solid occupancy and lease rates.
Meanwhile, the REIT complements its stable portfolio with a solid balance sheet and a conservative 61% payout ratio on its 3.5%-yielding dividend. Because of that, Mid-America has plenty of financial flexibility to invest in growing its portfolio, which it primarily does via development and redevelopment projects. The company currently has $460 million of development projects underway that should stabilize over the next few years. As they do, they'll provide the REIT with more income to keep growing its dividend.
Best of both worlds in many ways
UDR prides itself on the diversity of its portfolio. The company currently operates in 21 coastal and Sunbelt markets. It also owns a mix of Class A (57%) and Class B (properties) in both urban (42%) and suburban (58%) markets. Because of that, it offers investors a unique blend of quality, value, growth, and stability.
Those factors have paid dividends over the years. The REIT has grown its NOI at a faster rate than its peer group over the past decade, enabling it to outperform its rivals. Meanwhile, its steady growth has allowed it to pay dividends for the past 191 straight quarters, including growing its payout every year since 2009. That dividend, which yields 4.4%, is on solid ground thanks to its relatively conservative sub-70% payout ratio, solid investment-grade balance sheet, and diversified portfolio. Those factors give it the financial flexibility to continue expanding its portfolio via acquisitions and development projects so that it can continue increasing its dividend and generating above-average total shareholder returns.
Easy ways to earn passive income
Camden Property, Mid-America Apartment Communities, and UDR offer investors the opportunity to own diversified apartment portfolios. While they each have a slightly different focus, they all boast solid financial profiles to back their high-yielding dividends. Because of that, buying any one of them this month would enable an investor to enjoy the benefits of passive income without having to do the work associated with being a landlord.