Federal Realty (FRT 0.69%) is offering investors a 4.4% dividend yield today. That's well above the 1.6% yield you'd get from an S&P 500 Index ETF or the 4.1% from the average real estate investment trust (REIT), using Vanguard Real Estate Index ETF as a proxy. But a higher yield is only one reason to like this landlord, which has easily survived multiple recessions with its dividend intact.
The dividend history
Federal Realty proudly proclaims that its 55-year-long streak of annual dividend increases is longer than any other publicly traded REIT. It also happens to put the company on the Dividend Kings list, a group of companies that have proven their commitment to rewarding investors in both good and bad times. But it's worth thinking about the last 55 years for just a second.
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This period includes the COVID-19 pandemic, the Great Recession, and the 2000 tech meltdown. Each of those periods was associated with a material economic downturn. And that's just the last 23 years. Federal Realty's dividend streak actually started before the OPEC oil embargo in the 1970s, which helped to usher in a painful period of intense inflation.
To suggest that the company has proven its resilience is an understatement. Investors looking for a reliable dividend will be hard-pressed to find another real estate company with a record that comes anywhere close to Federal Realty. While the dividend yield has been higher in the past, play-it-safe investors should have this REIT on their watch list, if not their wish list.
The core business
Federal Realty's business is actually pretty boring, which is a good thing for investors who want a simple and reliable dividend stock. It owns strip malls and mixed-use developments. Most of its properties (75%) have a grocery store, which helps to drive regular traffic to the shopping centers. Around the grocery store are clothing stores, restaurants, and service providers (hair salons and dry cleaners, for example). Essentially, the REIT owns properties that people visit all the time to support their lives.
What separates Federal Realty from most of its peers, however, is that it only owns around 100 assets. It is focused on quality over quantity. The average population within three miles of a Federal Realty property is 177,000, and the average income is $151,000. That's far higher than any of its closest peers. So it not only provides the basic necessities of modern life to customers, but its properties are also located in exactly the types of areas where tenants want to be located.
On top of that, Federal Realty is a well-respected developer. It tends to buy properties that need updating or that can be redeveloped to increase value. The range of options here is huge, from tearing down and completely rebuilding a property to simply updating an asset's look and feel. But just about every investment it makes includes some plan for improving property-level performance. And when it believes it has maximized the value of a property, it will sell if it gets a good offer, reinvesting the proceeds in a new property so it can start the process all over again. That may all sound like common sense, but Federal Realty has proven that this is a pattern that can be repeated again and again, given that it has followed this approach for decades.
Safety-first investing
There's no such thing as a perfect investment, and Federal Realty comes with its own set of warts. The biggest problem with the stock is that investors are aware of how well-run it is, which tends to lead to a premium price and lower yield than peers. But if you are a long-term dividend investor looking to own the safest dividend stocks, Federal Realty has shown that it is a step above the rest.
