Talk of a recession this year or next may quiet a bit as inflation cools, but the prospect always remains, and if one does occur, appreciation for companies that provide a safe and steady flow of income will likely once again grow.
And that could make this a particularly good time to look at stocks that have outstanding records in that regard and may be selling at a particularly nice price. A good place to start would be Federal Realty Investment Trust (FRT -0.37%).
According to the Federal Reserve, there have been eight recessions since 1968. It defines a recession as a decline in gross domestic product over two or more quarters. Federal Realty has raised its dividend every year during that time, earning this real estate investment trust (REIT) membership in the exclusive club of Dividend Kings, companies that have bumped up their payouts for at least 50 straight years.
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Premium properties create recession resistance
Founded in 1962, Federal Realty is one of the oldest REITs in the country and currently owns 102 shopping centers and mixed-use properties -- including hotels and high-end office space -- in Southern California, Silicon Valley, Phoenix, Chicago, Boston, New York, Philadelphia, Miami, and Washington, D.C.
But not just anywhere in those nine markets. These properties are in affluent, first-ring suburbs and are anchored by grocery stores and other necessity-based retailers mixed in with high-end, trendy specialty shops and eateries. That combination makes Federal Realty a particularly recession-resistant opportunity for investors interested in steadily rising income with the possibility of share-price growth.
Financial performance that supports the dividend
Federal Realty also has built a record of financial strength that supports what's now the longest dividend growth streak among the 225 or so publicly traded REITs. That includes investment-grade ratings, ample liquidity, and steady growth in its funds from operations (FFO), a key measure of a REIT's ability to sustain and boost dividends.
This venerable REIT also has posted a compound annual average growth rate of 7% over those 55 years of consecutive increases. Meanwhile, its current payout ratio of about 51% based on cash flow and guidance for continued slow but steady FFO growth points to the ability to keep that record going.
Reliable income at a nice price
Real estate dividend stocks provide income to investors without the hassle of directly owning properties. And REITs themselves are required by tax law to pay out at least 90% of their taxable income to shareholders, making them classic passive income machines.
Federal Realty's impressive dividend growth streak demonstrates its ability to do that. This is a defensive stock in that sense, competing as much with bonds and savings for investor attention as it does with growth stocks.
To wit, the stock is currently yielding about 4.3% at a share price of about $100, and analysts give it a target price of $112, pointing to some potential upside as this dividend machine continues cranking through whatever the economy brings next.
And as for that dividend streak, the payout is currently $1.08 per share after the fourth straight boost of $0.01 was announced in the third quarter of last year. An increase for 2023 has yet to be announced, but with the CEO recently proclaiming Q1 of 2023 the REIT's best first quarter ever in its 60-year history, it seems unlikely this seasoned management team plans to break that streak.
