Retirement income is all about reliability: If you're not drawing a paycheck anymore, you need income you can count on, month after month and, if things go well, year after year.
There's Social Security, of course, and while there was just a cost-of-living increase pumped into that critical pipeline for tens of millions of beneficiaries, that was to combat inflation, that fly in the ointment for any fixed-income stream.
Stocks, of course, are a great way to build wealth, but taking on capital risk becomes, well, riskier now when the timeline for recovery has shrunk. So, what to do? You could consider real estate investment trusts (REITs).
REITs are required by law to pay out to shareholders at least 90% of their taxable income as dividends, and they've long been a great way to garner passive income while enjoying the profit -- and loss -- potential of owning real estate.
There are a lot to choose from, in multiple sectors, but a great choice to consider here is one that's not just a Dividend Aristocrat, but a Dividend King. The former is an S&P 500 stock that has increased its dividend for at least 25 consecutive years. The latter? For 50 years. There's one REIT in that group.
All hail Federal Realty
Federal Realty Investment Trust (FRT) owns, operates, and redevelops high-quality properties -- mainly retail -- concentrated in major coastal markets such as Washington, D.C., Boston, San Francisco, and Los Angeles.
Based in North Bethesda, Maryland, the company was founded in 1962 and has raised its annual dividend for nearly as long: 54 straight years, the longest among all REITs.
Image source: Getty Images.
Federal Realty says its mission is to deliver long-term, sustainable growth through investing in communities where retail demand exceeds supply, and not only has it long delivered on that promise, it may be poised to continue building on that record.
The company now has 106 properties with about 3,100 tenants, 25-million square feet of space, and -- because it's not all just about retail -- about 3,200 residential units. The portfolio was 92.8% leased at the end of the third quarter, a three-month stanza in which it signed 119 leases at rents that were a 16% increase over the previous leases on a straight-line basis. Plus as of Oct. 29, the company says, it had collected approximately 96% of total billed recurring rents -- 99% if you count rent deferrals and abatements.
Further sweetening the deal, Federal Realty increased its 2021 forecast for funds from operations (FFO) earnings per diluted share from $5.45 to $5.50, and for 2022, from $5.65 to $5.85, adding to the confidence the company would be extending its run of raising dividends.
Speaking of raising dividends, the increase was only a penny per quarter this year, from $1.06 per share to $1.07 in the second quarter, but this was an extraordinarily tough year for retail real estate, and those pennies add up. In the third quarter of 2011, by comparison, the payout was $0.69 per share.
Federal Realty stock was at about $127 as of Nov. 29, down from its 52-week of $135.56 from Nov. 5 and well above its 52-week low of $81.85 on Jan. 11. That low, of course, was before the pandemic started receding amid the vaccine rollout, when many retail stocks, including REITs, were still in the doldrums.
That kind of decline certainly would be hard to swallow, in particular for a portfolio counted on as a retirement nest egg, but the dividend was maintained and the stock recovered.
And that's the point here: At this stage in your investing life, who needs the excitement? What you need is reliable, predictable income.
Federal Realty may soon land in my retirement portfolio
Based on Federal Realty's latest stock price, the annual dividend of $4.28 a share works out to a yield of about 3.4%. There are certainly higher yields among the universe of more than 225 REITs available on the major stock exchanges. But there may not be many from companies that inspire as much confidence as this one.
I now have 10 REITs in my own portfolio, which is about to transition to a retirement portfolio, as I've now reached the tender age of being eligible for Medicare. Federal Realty isn't in that portfolio now, but for the reasons described above, it may soon be.
