Maintaining consistent dividend increases is no easy feat. That's why Dividend Kings, a title given to stocks that have maintained 50 years or more of raises, are some of the most sought-after stocks for income investors. The reliability and growth they can offer are simply hard to beat.
It's not often that Dividend Kings go on sale. But today's bear market and uncertain economic conditions mean loads of Dividend Kings are trading for cheap, including real estate investment trust (REIT) Federal Realty Investment Trust (FRT 0.01%).
The stock has 55 years of dividend raises under its belt and is down 33% this year. Does today's discounted price make this stock a screaming buy? Let's take a closer look to find out.
What's going on
Federal Realty Investment Trust is the premier net-lease REIT specializing in the acquisition, development, and leasing of high-end mixed-use properties including open-air shopping centers, offices, and apartment buildings. Today, the company owns and leases 105 properties in nine strategic markets across the United States including Phoenix, Miami, New York City, and Washington, D.C.
The REIT's share price fell dramatically at the start of the pandemic, finally recovering to pre-COVID-19 levels at the beginning of 2022. However, general market volatility and concern about a potential recession's impact on retail spending have pushed Federal Realty Investment Trust's share price back down 33% since the start of the year.
NYSE: FRT
Key Data Points
Despite its beaten-up share price, Federal Realty Investment Trust has an outstanding track record and has performed admirably lately. Its portfolio is 92% occupied and the company is continuing to grow its funds from operations (FFO), a metric similar to earnings per share (EPS), as well as increase its operating income quarter over quarter and year over year.
The REIT's debt did climb over the past two years as it combated the initial impacts of the pandemic on its tenants and buildings. But its debt ratios are improving and the company still has $1.2 billion in cash and liquidity on hand, which more than covers its current dividend payouts and near-term debt obligations.
Will its growth continue?
If we consider Federal Realty Investment Trust's history, there's ample reason to believe the company and its dividends will continue to grow.
It raised its dividend during the record-breaking inflation of the 1980s and through one of the worst economic recessions in our history, the Great Recession. When in-store retail spending stopped almost completely and people fled major cities at the pandemic's onset, the company still raised its dividend.
If conflicts, record-breaking inflation, economic downturns, and global pandemics haven't stopped Federal Realty Investment Trust from growing its dividend for 55 years, it's hard to imagine what could.
Its dividend payout ratio is 65%, which leaves the company more than enough room to maintain or raise its dividend even if its portfolio is negatively impacted by a recession in the short term. Furthermore, it's got a favorable business model to ride out a downturn. Its focus on owning assets in first-ring suburbs in high-density cities means its properties benefit from high traffic and high demand in affluent neighborhoods.
That has undoubtedly helped the company thrive as spending slows. Fewer than 10% of Federal Realty Investment Trust's properties are located where the median income is less than $75,000, the income group more commonly impacted during a recession.
Plus, it's got a robust pipeline of redevelopments and new developments that is helping the company further diversify its holdings and drive new growth. Retail makes up the majority of its annual base rents (ABR), but its percentage of residential and office income is quickly growing.
Does today's price make it a buy?
Right now, the stock is trading around 14 times its forward FFO for 2022. Fellow Dividend Kings Coca-Cola and Realty Income, for comparison, are trading around 24 times EPS and 15 times FFO, respectively. So Federal Realty Investment Trust's valuation appears in line with other dividend stocks with similar payout track records.
Investors taking advantage of today's favorable pricing will be able to lock in a 4.7% dividend yield, and given Federal Realty's long history of dividend raises, it's likely to grow in the future.
