This real estate investment trust is designed for steady growth and has an unmatched dividend track record.
There are only a few dozen stocks that have increased their dividends for more than 50 consecutive years, and only one real estate investment trust is a member of this exclusive club. Shopping center developer and manager Federal Realty Investment Trust (FRT 1.77%) has by far the longest streak of dividend increases in its sector, and one of the most impressive in the entire stock market.
With that in mind, here’s what Federal Realty Investment Trust does, and why the stock might be worth a closer look right now.
What does Federal Realty Investment Trust do?
As the name implies, this is a real estate investment trust, or REIT. It has been around since the early 1960s and is one of the oldest REITs in the United States. Specifically, Federal Realty owns a portfolio of 102 retail properties, located in some of the most populated and high-income metropolitan markets in the U.S.
Most of the properties in the portfolio have some sort of grocery component, and many have non-retail elements such as residential, office, or hotel spaces. Thirty-eight percent of the portfolio can be classified as mixed-use centers. More than three-fourths of the rental income is from retail tenants, but with more than 3,000 residential housing units at the properties, there is a significant multifamily component.
For this REIT, there are about 3,300 different tenants occupying 26 million square feet of space, and none of them account for more than 3% of the rent. Retail and office tenants generally sign long-term leases (10-year terms are standard) with annual rent increases built in.
Federal Realty grows in a few ways, including developing new properties from the ground up, redevelopment of existing properties, and by strategically selling assets to redeploy capital elsewhere. The company currently has about $400 million in mixed-use projects under construction and has $330 million in redevelopment projects underway.
An unmatched dividend record
Federal Realty Investment Trust has the longest active streak for consecutive annual dividend increases in the real estate sector. It has increased its payout for an impressive 57 consecutive years, dating back to 1967. And it isn’t just an impressive streak of increases — the magnitude of the increases is impressive. Federal Realty has grown its dividend at a 7% annualized rate for the 57-year period. In fact, the current dividend is 37 times higher than the company’s payout when the streak began.
If you’re looking for reliable income, here’s one stat you need to know. Since Federal Realty’s dividend increase streak began, there have been eight recessions in the United States. This includes the Great Recession from 2007 to 2009, which was directly related to real estate. But the company’s steady income model kept profits rising, and management kept the streak alive.
It’s also worth noting that Federal Realty isn’t just an income stock. It has significant upside potential. The past few years haven’t been an excellent environment for REIT shares, but the long-term performance has been impressive. Federal Realty has generated a 1,590% total return since 2000, roughly triple that of the S&P 500.
Is it right for you?
To be clear, Federal Realty isn’t a stock that is going to make you rich quickly. It is designed for slow and steady compounding over time. With shares trading for a reasonable valuation, and potential tailwinds from expected interest rate cuts, which are generally good for REIT prices, now could be a smart time for income investors to take a look.
Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
