Real estate investment trust Federal Realty (FRT) operates in one of the least exciting property niches around -- shopping centers. Often given the less-than-positive moniker "strip malls," these shopping venues tend to be fairly steady performers if you own the right ones. Federal Realty makes sure it does, and the evidence of that is in its earnings results.
How long?
A dividend stock starts to get some "street cred" when it has increased its disbursement for 10 consecutive years. It earns the designation Dividend Aristocrat when it reaches 25 consecutive years of increases. And when the company gets to 50 consecutive annual dividend hikes it's called a Dividend King. Federal Realty's streak is up to 53 years. Think about the consistency of that for just a moment.
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Federal Realty increased its dividend even in the face of the coronavirus pandemic. It increased its payout during the 2007-09 Great Recession. It increased the dividend during the bursting of the tech bubble in 2001. And those are just the big market events since 2000. There were a host of headwinds before that, like 1987's Black Monday, the hyperinflation of the 1970s, the OPEC oil embargo, and recessions all the way back to 1967. While real estate investment trusts are specifically designed to pass income on to shareholders, Federal Realty is one of just 30 public companies of any type to achieve this feat. It stands toe-to-toe with companies like Johnson & Johnson, Procter & Gamble, and Coca-Cola, all of which are dividend-paying icons.
Federal Realty has proven it puts investors at the top of its priority list. While that alone doesn't make it a long-term buy, it should certainly put it on your list of potential investment candidates.
The foundation for an impressive history
As noted above, Federal Realty owns shopping centers. Although not exciting in the least, these are the types of properties that consumers visit on a regular basis. That's particularly true if they include a grocery store in the tenant mix, which is the case for over 75% of Federal Realty's assets.
But not all strip malls are desirable, as you can quickly tell just by driving around your town. That's why it's so important that this REIT focuses on quality over quantity.
With just over 100 properties, Federal Realty doesn't have anywhere near the largest portfolio in the strip mall niche. It focuses on owning top-tier assets in and around major metropolitan regions, including New York, Boston, Washington, D.C., Chicago, Los Angeles, Silicon Valley, Philadelphia, Miami, and most recently Phoenix. These are regions with material population density and high average incomes. And Federal Realty works hard to maintain and upgrade its properties so they are the most desirable -- during the pandemic it was even fielding calls from potential tenants looking to upgrade their nearby locations to one of its properties.
It's worth making a quick, back-of-the-envelope comparison here. In 2020, which was marred by the pandemic, Federal Realty generated roughly $8.2 million in rent from each of its 101 properties. Peer Kimco (KIM -0.54%), which is one of the largest names in the sector, generated roughly $2.6 million from each of its 400 properties. This is a fairly simple comparison, and it is in no way meant to suggest that Kimco is a bad REIT. However, it does highlight the fact that Federal Realty is really doing something different and, frankly, unique in the strip mall space.
FRT Dividend Yield data by YCharts
Now add in Federal Realty's investment-grade-rated balance sheet, and the fact that around 35% of its portfolio falls into the mixed-use category, which means the holdings include offices and apartments in the mix (together accounting for 21% of rents). So you also have financial strength and diversification on top of that shareholder-friendly dividend history. Those mixed-use assets are also interesting because they tend to have long investment cycles, as they get built in stages over time. So Federal Realty also has a pipeline of internal growth projects to work on over and above any acquisition-led growth it undertakes.
Buy it now?
When you put it all together, Federal Realty really stands out as one of the best long-term REITs you can buy (and perhaps one of the best long-term stocks overall). That said, investors are well aware of this fact, and the stock is usually afforded a premium valuation. Its current yield of around 3.6% is nearly three times what you would get from an S&P 500 Index fund, but is toward the low end of the company's historical range.
However, if you look over the past decade, the yield is still relatively high, hinting that the REIT may be fully valued -- but given today's market environment, not particularly richly priced. All in all, if you are looking for a great long-term dividend investment, Federal Realty is worth a look if you are willing to pay a fair price for good company. If you have a value bias and want to wait, make sure this REIT gets onto your wish list so you don't miss out the next time Wall Street gets irrational -- indeed, in early 2020 the yield spiked over 6%, a level last seen during the 2007-to-2009 recession.
