Long-term dividend investors are always looking for some mixture of a high yield and a safe dividend. That's exactly what I got when I added Federal Realty Investment Trust (FRT 1.44%) to my portfolio during the 2020 bear market. Here's why I don't plan on selling it anytime soon as well as why another major market swoon would be an opportunity to add to my position.
A wild, wild ride
I'm not going to tell you my age, but I've been investing for a while at this point. In fact, while the world is all aghast at the rapid pace of inflation today, one of the first books my father gave me when I showed an interest in money was about... the inflation of the 1970s. Why? Because it was still a relevant issue. I have very clear recollections of 1987's "black Monday," I had cash in the market for the 2000 internet stock debacle, and I took some lumps during the 2007 to 2009 housing-led recession and bear market.
In 2000, I avoided the early hit because I didn't own tech stocks going into the correction. But I bought a tech stock index fund after the initial drop, only to see my wealth fall along with the exchange-traded fund (ETF) I chose. In the so-called Great Recession, I owned a couple of mortgage real estate investment trusts (REITs) that went belly-up. (This is why I'll probably never buy another mortgage REIT as long as I live.) And then I bought a diversified collection of bank stocks, to add insult to injury, right before they, too, went down the rabbit hole.
Luckily, none of these mistakes were all that material to my financial well-being, but each one was vitally important to the investor I am today. Basically, I learned to stop playing games and stick to well-run companies that have achieved long-term success. When the pandemic hit, which made 2020 by far the wildest year I've lived through as an investor, I was prepared to make sensible investment decisions -- like buying Federal Realty.
What's so great about Federal Realty?
The thing is, Federal Realty isn't exactly a household name. In fact, it's kind of a small player in the strip mall sector, where it operates with just about 100 or so properties. But it has something that no other REIT offers: The longest streak of annual dividend increases in the entire REIT sector.
Indeed, despite massive variability in the economy over the last 54 years, Federal Realty increased its dividend in every one of those years. That's not a guarantee that the dividend will be increased in the future, but it is a clear example that this Dividend King cares deeply about returning value to investors via regular dividend hikes.
As far as the modestly sized portfolio goes, Federal Realty prefers to cherry-pick the best locations in the most attractive markets: Think wealthy regions with material population size. And once it has bought a property, it goes to work redeveloping it to increase the value. That includes finding new and/or better tenants, adding additional square feet, and just modernizing the look and feel of the place. It's a "back to basics" model, where buying at the right price is the focus. Notably, Federal Realty bought a handful of assets during the pandemic, including two in Arizona that opened up a new market for the REIT.
I had watched this REIT for years and never wanted to step in because the yield was too low for my taste relative to other options. But, during the early days of the 2020 bear market, the yield spiked to over 6%. When I saw that, I jumped aboard with the goal of holding this rather boring REIT for the rest of my life. I could have bought a different, higher-yielding strip mall REIT, but this clear industry leader was the only one that I seriously considered. No more looking to get rich quick for me -- I want to make sure my dividend checks keep on coming, no matter how wild the ride is on Wall Street.
A lucky break
The truth is, I consider myself lucky to have been able to start a new position during the pandemic. It was not easy to hit the buy button while the market was in a state of turmoil, but my history of missteps was vital in making it happen. And, with Federal Realty's dividend yield down in the 3.5% range again, I have sizable paper gains.
I'm not selling (selling too early is another lesson I learned the hard way) and kind of hope that another wild market turn will give me the chance to buy some more. Don't get me wrong, I'm not hoping for a bear market, but I am planning to be ready for the next bear when it eventually comes along.