by Tim Melvin | April 30, 2014 11:16 am
The search for income is becoming increasingly difficult and frustrating for many investors. Traditional income sources continue to be hampered by the very low yields in the bond markets.
The municipal bond market has seen additional problems arise relating to credit issues and future pension problems for many municipalities. Aggressive yield seeking during the past five years has pushed the price of many income sources to the point that they can no longer be considered bargain issues.
Investments like blue-chip dividend stocks Coca-Cola (NYSE:KO) or McDonald’s (NYSE:MCD) and large-cap real estate investment trusts are not cheap enough to merit consideration by long term investors right now. If you need income, you will need to look deeper than the large, well-known income stocks names like Simon Property Group (NYSE:SPG) or Avalon Bay (NYSE:AVB) to find issues that pay a decent income but are also cheap enough to merit serious consideration.
Smaller REITS that are not in the major indices and ETFs haven’t seen the same type of yield-starved buying as their larger brethren. They can often be purchased at very attractive prices that allow for the possibility of substantial appreciation in addition to providing high levels of current income. It requires more searching and researching than just buying the popular names, but it should prove to be time well spent.
Preferred Apartment Communities (NYSEMKT:APTS) is a smaller real estate investment trust that invests in and fniances multifamily real estate communities. Its assets currently consist of six multifamily communities with a total of 1,929 units, eight mezzanine and four bridge loans which are partially financing the land acquisition and predevelopment costs of future multifamily communities. The aggregate loan commitment amounts totaled approximately $129.8 million at December 31, 2013. The mezzanine loans supporting multifamily projects each contain exclusive limited options to purchase the properties once developed and stabilized.
The company has a market cap of just $124 million and is underfollowed by Wall Street analysts. Right now, there are just three firms that follow the company and only one providing estimates for this year. The lack of attention from the Street has caused the stock to languish somewhat.
CEO John Williams commented on the stock price during a recent conference call saying, “I don’t like the stock price. Not much we can do about it [except] continue to post weight numbers, but recognizing that we pay an 8% of sincerely tax-effective dividend, it’s a great bargain for those of you smart enough to buy our stock.”
The numbers would tend to support his conclusions. The stock currently trades at just 76% of tangible book value, so it is defiantly a bargain at this price. The company earns a Piotroski F-score of 6, which tell us that the balance sheet and income statement are improving year over year and the stock should outperform the overall market. The dividend is a generous 7.9% and APTS has raised the payout by 11% per year since its IPO in 2011.
The search for quality income ideas at bargain prices is becoming more difficult, but digging deeper into the corners of the market should prove to be a lucrative endeavor for those in search of higher yields.
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As of this writing, Tim Melvin was long APTS.
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