Federal Realty Investment Trust (NYSE:FRT) is one of the oldest real estate investment trusts, or REITs, and invests in shopping center properties located in seven major U.S. markets. Not only does the stock pay an above-average 3.2% dividend yield, but the company has increased its dividend payment every year for five decades.

Thanks to headwinds in the retail sector, as well as general REIT weakness, the stock is down by 20% over the past year. Here's an overview of Federal Realty Investment Trust's business and why now might be a smart time to add this long-term winning stock to your portfolio while it's trading at a discount.

Dollar bill with the word "dividends" in the middle.

Image source: Getty Images.

What does Federal Realty Investment Trust do?

Federal Realty Investment Trust invests in shopping center properties in densely populated, affluent markets. One of the oldest public REITs, the company was founded in 1962, and has an excellent record of generating both growth and income.

The majority of the company's 98 properties are located in top U.S. markets, with high concentrations in markets such as New York, Washington, D.C., and San Francisco. Within a three-mile radius of Federal Realty Investment Trusts' properties, the population is 157,000 and the average household income is $117,000, a combination that's simply unmatched among peers.

Because of the desirable locations of its properties, the company is able to charge significantly higher rental rates compared with peers. In fact, Federal Realty Investment Trust's average rent per square foot is 62% higher than its peer group average.

Wait, isn't retail risky?

It's true that many retailers are struggling right now, but that's not true across the board. In fact, certain types of retail businesses are doing quite well. For example, retailers that sell non-discretionary products are doing well, as are service-based businesses. Discount-oriented retail businesses as a whole are doing extremely well, and many are actually expanding. Many of Federal Realty Investment Trusts' top tenants are in one or more of these three categories. In fact, the company has an impressive 94.6% occupancy rate as of the latest data, and has done an excellent job of releasing vacant properties.

In addition, it's important to mention that Federal Realty Investment Trust has one of the lowest debt levels in the REIT industry. And with an investment-grade A-/A3 credit rating, it has the financial flexibility to reinvest in its properties as needed to maintain its competitive advantage.

Room for growth

Federal Realty Investment Trust plans to grow in a few different ways in the coming years.

First is through what the company calls "tactical redevelopment," which means capitalizing on residential opportunities at its properties, adding additional leasable space, among other opportunities. Since 2013, Federal Realty Investment Trust has spent $220 million on these types of growth initiatives, and has achieved a 9% rate of return on its investments. There is another $198 million of tactical redevelopment opportunities in the pipeline right now, and just to name a few examples:

  • Demolishing an old 10,000-square-foot restaurant pad to make way for a 18,000-square-foot multitenant building
  • Adding a 105-unit apartment building to a property
  • Adding 90,000 square feet of retail space and 25,000 of office space to a property

Next is what the company calls "strategic redevelopment," which refers to larger-scale projects in established retail destinations. For example, one of three projects currently in the strategic development pipeline involves constructing 161,000 square feet of retail space, 447 luxury residences, a 159-room hotel, 122 condos, and a healthcare office building.

It also says that its "shadow pipeline," which consists of more than 300 acres of land, has up to $4.5 billion worth of development potential over the next 15 or so years.

Finally, it grows through acquisitions as well, preferring to buy properties in prime locations that have lots of redevelopment or expansion potential.

Is the dividend safe?

Federal Realty Investment Trust recently announced its 50th consecutive annual dividend increase to a payment of $4.00 per share, per year. This translates to a yield of 3.15% based on the current share price. The company has managed to grow its payout during the Great Recession (a real estate-based crisis), as well as several other adverse economic environments. Federal Realty Investment Trust has increased its dividend at an annualized rate of 7% over the past half-century and at a 5.2% rate over the past decade while many peers have been forced to reduce their payouts.

Chart of FRT's dividend growth over past 50 years.

Image source: Federal Realty Investment Trust investor presentation. Chart does not account for most recent dividend increase to $4.00 per share.

Taking a closer look at the numbers, it doesn't look like Federal Realty Investment Trust's streak is in danger. With a debt-to-capitalization ratio of just 24%, its balance sheet is significantly stronger than its peers. Additionally, its 67% FFO payout ratio is quite low for a REIT. In a nutshell, the company has room to absorb a substantial drop in earnings (which doesn't look likely) without having to cut its payout.

The bottom line is that while there are no guarantees when it comes to income stocks, Federal Realty Investment Trust looks like a pretty safe long-term investment for income seekers who also want room for growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.