If you are hoping to buy a dividend stock and collect that payment for the rest of your life, you'll want to focus on owning "the best." That's in quotes because the best is a bit subjective, but there's one clear feature of a leading dividend stock: a proven dividend history.
With that in mind, dividend investors would be wise to dig into Procter & Gamble (PG 0.68%) and Federal Realty Investment Trust (FRT 0.71%).
The dividend is step one
Both Procter & Gamble and Federal Realty can be found on the list of Dividend Kings. This is an elite grouping of companies that have increased their dividends annually for at least 50 consecutive years.
That requires a great deal of consistency and resilience, since all businesses travel through both good periods and bad periods. The Dividend Kings list is a great starting point if you want to add a proven dividend payer to your portfolio.
Image source: Getty Images.
But having an impressive dividend history isn't where you should stop your research. In fact, it's really just the starting point. There aren't all that many Dividend Kings, but there are enough that you can be a little picky. And that's where the real story starts with both P&G and Federal Realty, which also happen to be leaders in their respective industries.
Procter & Gamble is a consumer staples company with a brand portfolio that includes Bounty, Pampers, and Gillette, among many others. Most of its portfolio sits at the high end on price. But the company has long focused on innovation and quality as a way to justify higher prices. That builds a loyal consumer base for its products, which in turn makes the company's products desirable to the retailers that sell them.
The company's massive size, meanwhile, gives it the wherewithal to support the kind of advertising and distribution networks that keep its products front and center with customers, as well.
The company has been performing quite well lately, achieving great success in its efforts to pass along higher costs to customers as it looks to protect its margins from the ravages of inflation. Which is good for shareholders, but perhaps less good for investors looking to buy the stock. The 2.4% dividend yield isn't particularly compelling, as it sits a little below its five-year average, suggesting a fairly valued stock rather than a cheap one.
More-traditional valuation metrics, like the price-to-sales and price-to-earnings ratios, are mixed, backing up that assessment. But this is a stock worth putting on your wish list for the next time it sells off.
A name to consider today
More compelling for most dividend investors will be Federal Realty. This real estate investment trust (REIT) owns strip malls and mixed-use developments. It has a pretty small portfolio with only around 100 properties. But they are very well located, with the average population within three miles at 177,000, and average household incomes of $151,000 per year. In other words, it owns property in exactly the places that retailers want to put stores.
But don't stop there. The average of its closest peers on these metrics is around $90,000 in income and 120,000 in population, so Federal Realty is way above the norm. And it has led to great results: It has the longest streak of annual dividend increases of any publicly traded REIT.
But it didn't get lucky with a few good buys. Federal Realty actively manages its portfolio. For example, during the height of the pandemic, it expanded into Arizona for the first time. One of management's specialties is redevelopment, so it often buys properties that need a little love. When it has maxed out the value of an asset, it's willing to sell it and start the process over again.
The most attractive thing about Federal Realty today, however, is that its roughly 4.5% dividend yield is above its five-year average. The yield has been higher in the past, typically during recessions, but it is still quite compelling today if you are looking for a stock that will pay you through thick and thin.
One to own and one to watch
Buying dividend stocks that you can count on for a lifetime of income is best started with a list of candidates. And then look at whether or not the price is right. That way, you have a group of stocks to track, and you can pick them up when they seem attractive.
Right now, Federal Realty looks like a good investment candidate. P&G less so, but you should still watch it closely just in case. Eventually Mr. Market will give you an opportunity to buy.
