A Back Door Play on the Internet Stock Boom

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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 , Netflix and Amazon , you might want to consider investing in the landlord of many of those all those shiny smart millennials, Essex Property Trust .

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 , an ETF that counts Google , Amazon and Facebook as its top three holdings.

But with many big Internet stocks trading at 100, 200, or even 1,000 times earnings, and others such as Zillow still unable to show a steady profit, Essex's 36 times earnings and 3 times dividend yield may be a bit easier for some investors to stomach.

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 and UDR which aren't as West Coast focused. Shares of both of those REITs have turned in a negative performance year to date. Essex's exposure to the tech boom, in other words, may already be priced into the stock, and if it's a bubble and the bubble pops, well then it won't look so great for Essex shareholders.

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.