Kimco Realty (NYSE:KIM) may look like a stock to avoid at first glance. As a real estate investment trust (REIT) specializing in shopping centers, it has seen foot traffic fall and malls empty as more consumers buy online. Given that trend, why would anyone see Kimco as an appealing investment when many retail spaces have become derelict or repurposed for other uses?

However, some retail spaces have remained vibrant. Moreover, the continuous changes in Kimco's portfolio create a possible opportunity in its stock. In the end, whether Kimco stock is a suitable investment may hinge on one's investment goals rather than the direction of the retail REIT industry.

Kimco continues to right-size itself

To be sure, discussion of the so-called "retail apocalypse" may have become overblown. Brick-and-mortar retail is not going away; it is merely shrinking. This is shown by the fact that stores such as Costco Wholesale and Walmart have leveraged their online and brick-and-mortar presences into a competitive advantage.

Moreover, the decline in retail has heavily fallen on enclosed malls as onetime anchors such as Sears Holdings and JCPenney struggle to survive. Fortunately for Kimco investors, the company tends to focus on open-air shopping centers. These mixed-use developments tend to attract a wider variety of tenants than traditional malls.

Blue skies and a wide sidewalk with bushes and trees on one side and retail storefronts on the other

IMAGE SOURCE: GETTY IMAGES.

Also, Kimco has restructured itself to reflect the current retail environment. In 2010, the company owned interests in 951 shopping center properties and 906 other property interests. At the end of 2019, it had reduced its footprint to 409 properties. The downsizing has negatively affected net income in previous years. However, with earnings now set to rise, the stock price may finally receive some help.

Does this mean investors should buy Kimco Realty stock? Put simply, it depends.

Kimco as an income investment

The case for Kimco Realty as a dividend stock appears straightforward. As a REIT, the company must distribute at least 90% of its income in the form of dividends. This clearly benefits income investors, but it also leaves dividend levels heavily dependent on income. Amid this environment, Kimco hiked its payout between 2009 and 2017 and has left it steady since. Today, it distributes an annual payout of $1.12 per share, a yield of about 5.9%. This compares well to the 4.06% yield average for the REIT sector.

Analyst forecasts indicate this dividend should at least maintain its current level. Even though earnings fell by an average of 10.73% per year over the last five years, the payout generally moved higher for a time. Now, conditions should improve. Over the next five years, Wall Street predicts average annual profit growth of 4.6% per year.

Keep in mind that this is net income, which should not be confused with funds from operations (FFO) -- in other words, the REIT equivalent of earnings. Funds from operations adds back the depreciation expense and makes other adjustments. This presents a more accurate picture of a REIT's operating cash flow, the money it uses to pay its dividend.

For the fourth quarter of 2019, Kimco reported FFO of $424.58 million, or $0.37 per share. This exceeded the $0.35 per share in FFO from the same quarter last year. It also left the company able to comfortably afford the $0.28 per share in quarterly dividends, despite a reported $0.22 per share in net income for the quarter.

Kimco as an equity investment

However, the outlook for a higher stock price seems more uncertain. For all of its successes in a challenging environment, Kimco's stock price has never recovered from the 2008 financial crisis. The stock trades more than 60% below its all-time high in February 2007.

KIM Chart

KIM data by YCharts.

The valuation metrics also offer mixed signals. At current prices, the forward P/E ratio is about 23. However, with 2019 FFO of $1.45 per share, its price-to-FFO ratio comes in at just under 13. This metric makes Kimco stock appear significantly less expensive.

Furthermore, as mentioned before, the company's real estate portfolio has become significantly smaller over the last few years. This has allowed occupancy rates to rise to all-time highs. Still, with fewer properties from which to derive income, one can see why five-year income growth remains solidly in the single digits.

Interestingly, the best hope for stock-price gains may come from the dividend itself. As mentioned before, the payout has reached levels well above REIT averages. Should the yield stay the same or possibly rise with a dividend hike, investors may choose to bid the price of Kimco stock higher.

Given the fact that both profit and FFO growth mired in the single digits, it remains unclear whether Kimco will see stock-price gains in the near future. Still, with a generous dividend and the company working hard to right-size itself, Kimco stock should serve income-oriented investors well regardless of whether the stock price sees any significant gains.