A Back Door Play on the Internet Stock Boom
NEW YORK (TheStreet) -- If you'd like to participate in the Internet stock boom, but are scared off by the enormous runs and sky-high multiples of companies like Facebook
Essex is one of the largest landlords in West Coast markets like Seattle, San Jose and San Francisco, and its shares are up just 8% year to date vs. 40.62% for the First Trust Dow Jones Internet Index
But with many big Internet stocks trading at 100, 200, or even 1,000 times earnings, and others such as Zillow
Essex "was one of only a handful of REITs that did not cut its dividend in 2008/09," according to a report published Friday by Imperial Capital analyst David Harris. It upped its dividend by 10% in the first quarter, and Harris believes "future dividend growth will meet/exceed the sector average."
Fine, you say, but a REIT is not an Internet stock. It is still stuck with the relatively boring business of building or buying buildings and renting them out. Essex can't revolutionize entertainment and leisure time or the way people communicate.
What's more Essex's 8% year-to-date return looks downright awesome if you compare it to other apartment REITs like Equity Residential
On the other hand, what if U.S. homeownership rates continue their steady decline and apartment REITs rebound as a sector? Essex will benefit, even if tech is a bubble. That suggests Essex may be a nice way for tech stock enthusiasts to diversify their portfolios. If tech stocks continue their run, Essex probably will too, but if they don't, Essex might still benefit from a rebound in apartment REITs as a group.
-- Written by Dan Freed in New York.