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Can This Dividend King Keep Growing in 2022?

By Matthew DiLallo – Jan 4, 2022 at 10:31AM

Key Points

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This real estate investment trust has increased its dividend for 54 straight years.

Federal Realty Investment Trust (FRT) is a king among real estate investment trusts (REITs). The retail REIT has increased its dividend for 54 straight years. That's the longest dividend growth streak in the REIT sector and puts it in the elite group of Dividend Kings

However, there are some questions about how long Federal Realty can continue growing its dividend, given the retail sector's headwinds. Here's a closer look at the likelihood of another dividend increase in 2022.

A rising stack of coins with a king chess piece.

Image source: Getty Images.

Is Federal Realty's current dividend sustainable?

Federal Realty's current dividend payment is up to $1.07 per share each quarter ($4.28 per share annualized), giving it a 3.1% dividend yield on the recent share price. The REIT expects to generate $5.45 to $5.50 per share of funds from operations (FFO) in 2021, implying a dividend payout ratio of around 78%. That's a relatively conservative level for a REIT. 

The company further compliments its solid financial profile with a top-tier balance sheet. It has one of the highest credit ratings in the REIT sector. It also has lots of liquidity (cash and available credit) and no debt maturities until 2023.

Federal Realty also has a strong real estate portfolio. It concentrates primarily on owning retail centers in the strongest suburban markets of many of the largest or fastest-growing cities. Further, over 75% of its properties have a grocery component, drawing a steady stream of shoppers. That helps reduce the impact of e-commerce and recessions on its other tenants. Meanwhile, the company has been diversifying beyond retail by adding residential units, hotels, and office buildings to its retail centers. These factors all combine to put the current dividend on rock-solid ground.

Can Federal Realty grow its dividend in 2022?

While the retail sector took a hit in 2020 because of the pandemic, Federal Realty hit back in 2021. The company used its strong balance sheet to go on a shopping spree. It has acquired five properties with 1.9 million square feet of rentable space across 135 acres for $441 million. Of note, it entered the rapidly expanding Phoenix market, where it purchased two properties. Those deals helped increase its exposure to the Sun Belt region, which is benefiting from significant population growth. 

Federal Realty is also investing capital to turn several of its retail properties into mixed-use developments that include office space and residential units. It expects to complete additional projects in 2022. On top of that, it's investing capital in redeveloping existing retail buildings to support new retail tenants. It has several recently completed projects on track to stabilize in the coming year and many more in the pipeline.

Combined with the continued recovery from the pandemic, Federal Realty sees these investments helping grow its FFO to a range of $5.65 to $5.85 per share in 2022. That implies 5% growth at the midpoint. 

Given its conservative payout ratio and strong balance sheet, Federal Realty can certainly afford to give its investors another raise in 2022, as well as increase its payout by 5% (matching FFO growth) and still maintain a reasonable payout ratio.

This Dividend King looks to remain on its throne in 2022

Federal Realty reigns supreme as a Dividend King in the REIT sector with 54 straight years of dividend growth. That streak seems unlikely to end in 2022, given the company's conservative financial profile and expected FFO growth. Further, its focus on owning and investing in the best retail properties in the strongest locations should continue to pay dividends in the coming years.  


Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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