It's tough owning retail properties today, with investors largely afraid of anything that might get touched by the so-called "retail apocalypse." The thing is, Kimco Realty (NYSE:KIM) is doing a good job of dealing with this overhyped transition period in the retail sector. Here's what you need to understand to decide if Kimco Realty should have a place in your portfolio.

Focused on necessities

The real pain in the retail space is at enclosed malls, where anchor tenants like Sears that have failed to stay relevant are getting killed by the shift toward online shopping. While that's an important sector in the retail space, it isn't actually indicative of what's going on across the entire retail sector. Kimco, for example, largely owns shopping centers with grocery stores in them. These assets make up nearly 80% of the real estate investment trust's (REIT's) rent.

A binder with the acronym REIT and the words real estate investment trust on it

Image source: Getty Images

Buying food draws customers into the shopping centers Kimco owns, bringing customers to the other stores that reside in the centers as well. Those other stores are also heavily tilted toward necessity and experiential tenants, like hair salons and restaurants, respectively. Overall occupancy at the company's roughly 430 centers is an impressive 96.2%, matching a record high. Anchor tenant locations enjoy 98.2% occupancy, and smaller tenant space 90.5%. Clearly Kimco isn't having any trouble keeping its shopping centers occupied.

Part of that is because roughly 80% of its rent roll comes from markets with high density and high incomes. These are often coastally located and expected to see population growth over the next few years. That helps to explain why Kimco has been able to increase rents on expiring leases at its properties by at least 10% for 22 consecutive quarters. In the most recent quarter new leases were signed with an average increase of 37%.

All of this, meanwhile, provides a solid foundation for the company's growth plans. There are two big efforts underway: redevelopment and ground-up construction. Kimco currently expects to spend as much as $350 million in 2019, split roughly 60/40 between redevelopment and new construction. At this point that's expected to drop to between $200 million and $250 million a year on an ongoing basis, switching more heavily to redevelopment efforts in the future.

Is it worth buying?

So the story behind Kimco is pretty solid, but even a great company can be a bad investment if you pay too much for it. So investors wondering if Kimco is a buy or not need to look at some of the other factors in play here. For starters, the REIT yields a fairly generous 5.9%. That's down material from the 8% level a few years ago as investors have started to realize that Kimco is successfully navigating the retail transition taking place. But it is still high relative to the roughly 2% yield you'd get from an S&P 500 Index fund or the 3.4% from the broader REIT group, as measured by Vanguard REIT ETF. And with a funds from operations (FFO) payout ratio of around 75% based on the midpoint of 2019 guidance, it is well covered. Simply put, income investors should be interested here.

KIM Dividend Yield (TTM) Chart

KIM Dividend Yield (TTM) data by YCharts

The company's valuation, meanwhile, is still reasonable despite a nearly-33% price advance so far in 2019. The price to projected FFO ratio stands at 13 times. Investors are starting to see the value being created at Kimco, but with the stock still down roughly 40% from its 2016 highs there's a lot of lost ground to make up -- the average REIT was basically breakeven over that same span. So investors concerned about overpaying probably don't have much to worry about.

As for the company's financial strength, the REIT boasts an investment-grade balance sheet. Only around 25% of its portfolio has property-level debt attached to it, and debt and preferred stock make up a reasonable 44% or so of the company's enterprise value. In other words, Kimco is working from a fairly solid financial foundation.

Worth a very close look

Add it all up and Kimco looks like a pretty solid buy for income-oriented investors. To be fair, the incredible stock advance so far in 2019 isn't something you should expect to continue in perpetuity -- it's just a function of investors finally starting to realize that Kimco is a bargain. This is really just a tortoise-like company executing on a solid plan, where collecting dividend checks is likely to make up a material portion of your total return over time. But with a roughly 6% yield, that shouldn't bother anyone very much. 

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.