The Dividend Kings are the best-of-the-best in dividend longevity. These are stocks with 50 or more consecutive years of dividend increases, asserts growth and income expert Ben Reynolds, editor of Sure Dividend.
The Dividend Kings list is a great place to find dividend stock ideas. However, not all the stocks in the Dividend Kings list make a great investment at any given time.
The 5 stocks featured in this report are our top-ranked Dividend Kings today, based on expected annual returns through 2025. Stocks are ranked in order of lowest to highest expected annual returns. Total returns include a combination of future earnings-per-share growth, dividends, and any changes in the P/E multiple.
Read Part 1 — Lowe’s Companies here
Part 2 — National Fuel Gas here
Part 3 — Farmers & Merchants Bancorp here
Federal Realty (FRT) — the top rated stock in our countdown — is a real estate investment trust, or REIT. It concentrates in high-income, densely populated coastal markets in the US, allowing it to charge more per square foot than its competition. Federal Realty trades with a market capitalization of $6.1 billion today.
Federal Realty’s business model is to own real estate properties that it rents to various tenants in the retail industry. This is a difficult time for retailers, as competition is heating up from e-commerce players such as Amazon (AMZN) and many others.
Mall traffic is declining, which has put pressure on many brick-and-mortar retailers. Conditions for retail real estate have become even more challenging due to the coronavirus, which has forced many stores to close.
Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT. These qualities allow it to perform admirably, and continue growing even in a recession.
Federal Realty continues to generate positive FFO and pay dividends to shareholders, thanks to a high-quality and diversified property portfolio.
Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT. These qualities allow it to perform admirably, and continue growing even in a recession.
The company reported weak second-quarter results, not surprisingly because of the coronavirus pandemic. FFO declined 52% from the same quarter a year ago. The portfolio was 93% leased as of June 30th. However, investors are hoping the bottom is in.
Approximately 87% of Federal Realty’s commercial tenants were open and operating as of July 31st based on annualized base rent, compared with 47% on May 1st. As of July 31st, the company collected 68% of second-quarter billed recurring rents, and 76% for July 2020. Federal Realty also increased its dividend for the 53rd year in a row.
In response to the coronavirus-related shutdowns, the company is boosting its liquidity to help it get through the coronavirus crisis. Federal Realty completed a $400 million term loan issue on May 6th, and a separate $400 million note issuance on May 9th. The company has approximately $2 billion in available liquidity consisting of cash on hand and its undrawn credit facility.
Federal Realty’s FFO did not decline on a year-over-year basis at any point in the past decade, a tremendously impressive feat given that the U.S. economy dealt with the Great Recession. And it should also be noted that the company operates in the highly cyclical real estate sector.
The simple fact that it has such a consistent track record of steady FFO growth makes it one of the most desirable REITs in the market. We are forecasting 5.5% annualized FFO growth for the next five years.
Based on expected 2020 FFO-per-share of $5.73, Federal Realty stock trades for a price-to-FFO ratio of 14.3. Our fair value estimate for Federal Realty is a price-to-FFO ratio (P/FFO) of 15. We view Federal Realty stock as slightly undervalued.
A rising P/FFO multiple could reduce shareholder returns by approximately 1.0% per year over the next 5 years. However, expected annual FFO-per-share growth of 6.9%, plus the 5.2% dividend yield, lead to expected total annual returns of 13.1% per year over the next five years.
