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3 Ways to Collect Dividends From a College Education

By Reuben Gregg Brewer - Feb 8, 2014 at 7:00AM

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College is an increasingly important right of passage in the United States, and it's increasingly easy to collect dividends from students heading off to college without the risk of student IOUs.

Don't let the college kids have all the fun!

Investing in education is relatively easy in the United States. You can go to college, you can invest in a for-profit college like Apollo Education (APOL), or, if you like collecting dividends, you can buy American Campus Communities (ACC -0.15%), Education Realty Trust (EDR), or Campus Crest Communities (NYSE: CCG).

Kids will be kids
The number of college-age "kids" (those 18 to 24) hit a nadir in 1997 but then started to move solidly higher. Although the college-age population is set to fall off a little and then plateau before inching back up in another 10 or 15 years, there's still plenty of opportunity.

Between 1980 and 2010, the percentage of college-age kids attending college increased from 25% to over 35%. So, more kids are attending college today than 30 years ago. And that trend isn't likely to change, because getting ahead in this country is increasingly about knowledge-based work. Total enrollment is expected to continue on an upward trajectory.

On the surface, that should make a for-profit college like Apollo a good investment. But Apollo and the other for-profits have big problems. Increasing regulatory scrutiny, the currently negative perception of their offerings, and student payment concerns are key issues to watch. While Apollo has been around for decades and is probably one of the better for-profits, its top and bottom lines have fallen notably over the past two years, and the tide has yet to turn.

It would be much better if you could invest in not-for-profit schools in some way. Such institutions don't face the same issues and should benefit more from the student trends noted above. But you can't buy shares in Texas A&M or Arizona State University.

Buying a bed
While you can't buy shares in a not-for-profit college, you can buy shares in real estate investment trusts (REITs) that own housing in and around such campuses. For example, American Campus has properties at the two schools above. Education Realty and Campus Crest are two other student housing REIT options.

Campus Crest's Copper Beech concept.

The best part is students, don't pay rent with a loan. Sure, they may use money from a loan, but Campus Crest, Education Realty, and American Campus get paid as services are rendered, so there's no debt concerns. And as long as this trio focuses on decent colleges, housing demand should remain strong -- particularly for properties located on school grounds. That's a big avenue for growth.

Bringing in third parties to build and operate student housing is an increasingly important option as colleges look to keep costs down and quality high. For example, in September, American Campus broke ground on an expansion at its on-campus housing development at Northern Arizona University. Campus Crest is building a new facility on a property leased from the University of Pennsylvania. And Education Realty is set to provide an addition 1,500 or so beds to the University of Kentucky in 2015.

Education Realty's Kentucky press release sums up the opportunity for these REITs for both on-campus and off-campus housing when it explained the college was partnering with it to "...replace outdated residence halls..." Thirty-year-old student housing doesn't compete well with newer or at least modernized product. So even in locations with plenty of student housing, these REITs can find a competitive edge, using institutional access to capital to differentiate their properties.

An alternative eduction
Earning dividends from a college education is as easy as buying student housing REITs such as American Campus, Education Realty, or Campus Crest. That's safer than owning a for-profit college, and a heck of a lot easier than going back to school. As more and more kids head off to college, look for this trio to keep growing their portfolios and sending out a steady stream of dividend checks.

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Stocks Mentioned

Apollo Education Group, Inc. Stock Quote
Apollo Education Group, Inc.
APOL
American Campus Communities, Inc. Stock Quote
American Campus Communities, Inc.
ACC
$64.63 (-0.15%) $0.10
EdR Stock Quote
EdR
EDR

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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