The Top 5 Dividend Kings, Part 3: Federal Realty Investment Trust

05/20/2020 5:00 am EST

Focus: STRATEGIES

Ben Reynolds

CEO, Sure Dividend

The U.S. stock market has made a significant recovery in recent weeks, but multiple sectors still have depressed valuations; REITs continue to be challenged by the coronavirus crisis, but there are many attractive buying opportunities for long-term investment, notes leading income expert Ben Reynolds, editor of Sure Dividend.

Federal Realty Investment Trust (FRT) is a time-tested real estate investment trust with one of the most impressive dividend histories among all REITs.

It has increased its dividend each year for 52 consecutive years, placing it on the exclusive list of Dividend Kings, a group of less than 30 stocks with 50+ consecutive annual dividend increases.

Federal Realty is the only REIT on the list of Dividend Kings, placing it in rare territory that makes it a unique buy-and-hold dividend stock for long-term investors.

Read the Top 5 Dividend Kings, Part 1: Genuine Parts

Read the Top 5 Dividend Kings, Part 2: Emerson Electric

Federal Realty Investment Trust is a REIT operating in the retail industry. Its portfolio consists of 104 properties with approximately 3,000 tenants, and over 2,700 residential units. The company’s investment strategy targets densely populated, affluent communities where retail demand exceeds supply.

The coronavirus crisis has had a tangible effect on the company. In the most recent quarter, FFO-per-share declined 3.9% from the same quarter last year. The portfolio was 93.6% leased as of March 31, 2020, a slight dip from 94.0% occupancy in the same quarter last year.

The company has taken multiple steps to boost its liquidity and protect its balance sheet during the coronavirus crisis. Among the actions taken, Federal Realty drew $990 million of its $1 billion revolving credit facility in March, completed a $400 million term loan, and will likely refinance the $340 million in debt maturing through year-end 2021.

Federal Realty has credit ratings of A- from Standard & Poor’s and A3 from Moody’s, which are especially strong ratings for a REIT. Its high credit ratings allow the company to raise capital on more favorable financial terms, which is especially important in a recession.

Like many other REITs, Federal Realty is not providing full-year guidance due to the uncertainty posed by the coronavirus. But analysts still expect the company to generate FFO-per-share of $5.94 for 2020. Based on this, the company’s current dividend payout of $4.20 per share appears to be sufficiently covered, with some cushioning in case FFO declines in a recession.

We find Federal Realty to be a best-in-class REIT that should continue to increase its dividend on an annual basis, even in a recession. The recent downturn in the share price has made its valuation more attractive, while elevating its dividend above 5%. As a result, Federal Realty is among our top-ranked Dividend Kings.

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