2 days Ago By [email protected] (Reuben Gregg Brewer)
Federal Realty ( FRT -2.37% ) stands out from the real estate investment trust (REIT) pack in one very important way. It has increased its dividend annually for 57 consecutive years.
That's the longest dividend streak of any publicly traded REIT. Is it worth buying the stock while it is below $100? What does Federal Realty do? Federal Realty is largely a retail landlord owning strip malls and mixed-use developments. The mixed-use assets it owns are retail-heavy but also include offices and apartment buildings.
This provides a little diversification to the company's portfolio, but retail is still the main driver of performance. Unlike many of its strip mall REIT peers, which grow by adding more properties to their portfolios, Federal Realty only owns 100 or so assets. It has long focused on quality over quantity.
In fact, its properties have higher average population densities than its peers, and those outsized populations come with higher average incomes, too. Basically, it owns retail assets in the areas where tenants want to be located. Another key aspect of Federal Realty's business model is its focus on development and redevelopment.
The development aspect is heavily driven by its mixed-use assets, which have been constructed from the ground up over many years and still offer additional capital investment opportunities. However, the company is also an active investor in its strip malls, which brings the discussion to acquisitions and dispositions. Federal Realty prefers to buy well-located strip malls that need a little tender loving care.
That not only leads to more attractive pricing for Federal Realty, but it also means that the REIT can enhance the value of the property. Redevelopment efforts can be as simple as finding better tenants to occupy an asset, upgrading the facility, or even tearing it down and building something new. When a property has reached what Federal Realty believes is its full potential, it will happily sell it for the right price.
The proceeds from that sale will start the whole process over again with a new property. Federal Realty's formula has been a winner for a long time Companies don't reach Dividend King status, like Federal Realty has, by accident. It requires a solid business plan that gets executed well in both good markets and bad ones.
In fact, Federal Realty normally views recessions as opportunities to buy new properties at attractive prices. Its business plan is not only robust to downturns, it actually benefits from them. If you are a dividend investor trying to live off of your dividends, you probably care deeply about dividend consistency.
Federal Realty should be on your wish list, if not your buy list. This brings up Federal Realty's current price, which is a touch below $100 per share. The dividend yield is around 4.
5%. Is this a good price? On the income front, Federal Realty's dividend yield is multiples of the 1.2% you would collect from owning an S&P 500 index fund.
It is also notably higher than the average REIT, which has a yield of around 3.6%. So, from a relative perspective to other choices, it seems like Federal Realty is attractively priced for dividend investors right now.
FRT data by YCharts That said, based on Federal Realty's yield history, it has been more attractively priced before. In fact, the yield spiked to over 6% during the recession in the early days of the coronavirus pandemic. That isn't surprising, given that non-essential businesses were shut down.
Based on the retail focus, it makes sense to expect a price drop and yield spike during recessions. Therefore, Federal Realty isn't as cheap as it could be today. However, as the chart above highlights, the yield is near the high end of its 10-year yield range.
So, while it has been cheaper, it still looks reasonably attractive as an investment today while its stock is trading hands below the $100 price point. The big allure, of course, is the fact that you are getting a generous yield backed by a REIT with a long history of paying reliable and growing dividends. A buy for most, a wish list for some Most long-term dividend investors would probably be well-served by adding Federal Realty to their portfolios right now.
It is a foundational investment on which you can build a larger income portfolio. But if you only like to buy stocks when they are dirt cheap, you'll probably end up putting this Dividend King REIT on your wish list. That said, if you do buy it, don't look at a sell-off as a bad thing -- look at it as a chance to buy even more of a great dividend stock.
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