Federal Realty Investment Trust (FRT) owns a portfolio of just over 100 properties with 2,800 tenants; the portfolio produces more than $800 million in annual revenue, and shares trade with a $6.4 billion market cap, notes Ben Reynolds, editor of Sure Retirement.

Federal Realty’s competitive advantage is in its extremely high-quality portfolio of retail properties, which is the best in the business. This means that not only does Federal Realty have strong, sustained demand for its spaces, but it can charge industry-leading prices per square foot.

This is no accident; the trust’s coastal markets are carefully selected for population growth, income growth, and scarcity of supply. The formula has worked for decades.

The trust’s resilience during the COVID crisis showed why it is a Dividend King, having been able to stay highly profitable in one of the worst environments for retail since the Great Depression.

We see $4.55 in FFO-per-share for 2020; note that we are using an earnings power estimate of $6.00 per share, which normalizes results from COVID impacts. The REIT has 53 years of dividend increases.

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We expect Federal Realty to produce annual growth of 5.9% from our 2020 earnings power estimate of $6.00 per share. This is consistent with the trust’s historical growth rates, but we note that this growth is unlikely to be smooth.

REITs in general tend to see lumpy profit growth, and Federal Realty has exhibited this behavior as well. However, over time, the combination of rent increases and a growing portfolio should see Federal Realty’s FFO-per-share move higher.

The stock is trading for slightly below fair value, and we see 11.2% average annual returns in the coming years. With the yield at 5%, Federal Realty remains a strong income pick, and we see value in the shares at the current price.

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