There are over 200 publicly traded real estate investment trusts (REITs), most of which pay dividends. However, one REIT stands above all the rest: Federal Realty Investment Trust (FRT 0.36%). It has increased its dividend for 54 straight years, the longest streak in the REIT sector.
That qualifies it as a Dividend King, an elite group of less than 50 dividend-paying stocks that have increased their dividend for at least 50 consecutive years. Here's why dividend growth investors will want to take a closer look at this REIT.
Focusing on quality over quantity
Federal Realty is one of 20 publicly traded REITs focused on owning shopping centers. It's not the biggest in the group. The retail REIT currently has the third-largest market cap, behind Kimco Realty (KIM 0.42%) and Regency Centers (REG 0.15%).
Kimco owns 537 shopping centers and mixed-use assets comprising 93 million square feet of space, while Regency Centers has 406 properties comprising 55 million square feet of rentable space. For comparison, Federal Realty has only 104 properties with 25 million square feet of space.
However, Federal Realty has traded quantity for quality. The REIT concentrates on owning shopping centers in nine major U.S. metro areas. It focuses on suburban areas with dense populations, high household incomes, and limited retail competition. This focus means it has benefited from strong tenant demand for space in its shopping centers, keeping occupancy levels high and rental rates rising.
Federal Realty has also leveraged its top-notch locations to develop additional buildings on its sites. It has added hotels, office buildings, and apartments, further enhancing the appeal of its retail space to tenants while diversifying its income stream.
The REIT also focuses on owning retail centers that are more resistant to the impact of a recession and the growth of e-commerce. For example, over 75% of its shopping centers have a grocery component. Grocery stores are more resistant to a downturn and the threat of e-commerce, meaning they'll provide Federal Realty with stable rental income. Their presence also helps drive a steady flow of traffic into the company's retail centers, which benefits its other tenants.
Why the dividend should continue growing
Federal Realty's top-notch portfolio provides the company with stable rental income, putting a firm floor under the dividend, which currently yields an attractive 4.5%. The company further supports that payout with a strong financial profile. It has a conservative dividend payout ratio of 72% of its expected funds from operations in 2022.
That gives the current dividend a lot of cushion. It also allows the REIT to retain cash to fund new investments. Federal Realty also has a top-tier balance sheet, giving it additional flexibility for funding investments.
The REIT is making several investments to drive future growth. First, it's redeveloping some of its locations into mixed-use properties featuring new office buildings, apartments, and retail space. It currently has three projects underway, with $280 million of remaining investment to fund over the next three years.
Federal Realty also is taking on retail redevelopment projects that will revitalize six of its properties, with more in the pipeline. On top of that, it has 22 projects to improve other properties by enhancing their appeal to tenants and shoppers. The company expects to spend about $185 million on these projects over the next few years.
Finally, Federal Realty continues to make select acquisitions of high-quality retail properties in great locations. For example, it bought the Kingstowne Towne Center in north Virginia for $200 million this year. That's one of several acquisitions the company has made in recent years. It has also sold several noncore properties as it continues to improve the overall quality of its shopping center portfolio.
A high-quality passive income producer
Federal Realty has an elite dividend growth track record. That income stream should continue to rise in the future, thanks to its strong financial profile and growth-focused investments. All this means passive income seekers won't want to overlook this top-notch REIT.