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Dividend Kings In Focus: Federal Realty Investment Trust


Updated on October 28th, 2024 by Felix Martinez

Stocks with very long streaks of dividend increases are appealing because they generate stable earnings, and pay reliable dividends, even during recessions.

Not many companies are resilient during economic downturns, so investors must be careful when selecting dividend stocks to own for the long term.

One group of stocks that has stood the test of time is the Dividend Kings, a set of just 50 stocks with at least a half-century of consecutive dividend increases.

You can see all 53 Dividend Kings here.

You can also download an Excel spreadsheet with the full list of Dividend Kings (plus important metrics such as price-to-earnings ratios and dividend yields) by clicking on the link below:

 

Federal Realty Investment Trust (FRT) is a Dividend King that has 57 consecutive years of dividend increases.

This streak would be impressive for any stock, but it is extraordinary for a REIT (a sector notoriously susceptible to recessions).

In fact, Federal Realty is the only REIT on the Dividend Kings list.

Below, we’ll examine Federal Realty’s business and its prospects for continuing its dividend streak.

Business Overview

Federal Realty was founded in 1962, and since then, it has grown into a large retail-focused REIT that operates in high-income, densely populated coastal markets in the U.S.

Related: You can see Sure Dividend’s REIT list here.

The trust sees favorable demographics for the long term in terms of population and income growth in these markets.

Source: Investor presentation

This strategy of owning premium properties in premium markets has served the trust well, and it has grown steadily over the years.

Federal Realty also has a highly diversified property portfolio. No single tenant represents more than 2.7% of Federal Realty’s annualized base rent or ABR. It has only 8 tenants with greater than 1% exposure.

Federal Realty has more than 3,300 tenants in 102 properties, which represents a high level of diversification in terms of both tenants and geographic markets.

Growth Prospects

Federal Realty reported its second quarter 2024 financial results, showcasing strong growth and expansion. Net income available to common shareholders increased significantly to $1.32 per diluted share, up from $0.72 in the prior year. The company’s funds from operations (FFO) reached $1.69 per diluted share, a slight increase from $1.67 in 2023. This period also saw a record leasing volume, with 122 leases signed for 594,361 square feet of comparable retail space, representing cash basis rollover growth of 10% and a 23% increase on a straight-line basis. Portfolio occupancy improved to 93.1%, and the leased rate rose to 95.3%.

The quarter included active acquisition and divestment strategies, with FRT investing $275 million in two assets totaling 880,000 square feet. Additionally, the company sold its remaining assets on Santa Monica’s Third Street Promenade for $103 million, enhancing its focus on high-performing properties. Federal Realty also raised its quarterly dividend to $1.10 per share, marking 57 consecutive years of dividend growth—an unparalleled record in the REIT sector. The increase underscores the company’s commitment to delivering value to shareholders and further solidifies its financial foundation.

In response to favorable performance trends, Federal Realty updated its 2024 financial guidance, raising its earnings per share range to $3.33–$3.51 and FFO guidance to $6.70–$6.88 per diluted share. CEO Donald Wood highlighted the robust leasing demand and steady growth as indicators of the company’s ongoing appeal and strength. The issuance of the 2023 Sustainability Report also reflects FRT’s dedication to sustainable growth, reinforcing its market position as a leading REIT.

Federal Realty’s growth moving forward will comprise a continuation of higher rent rates on new leases and its impressive development pipeline fueling asset base expansion. Margins are expected to continue to rise slightly as it redevelops pieces of its portfolio, and same-center revenue will continue to move higher.

Competitive Advantages & Recession Performance

Federal Realty’s competitive advantage is in its development pipeline and its focus and relative dominance of very attractive markets.

The trust has proven that, over time, it can produce industry-leading average base rents because it has proven extremely adept at selecting and developing the best properties in the U.S.

Another competitive advantage is the trust’s strong balance sheet, which stands out among REITs. FRT has a solid credit rating of BBB+ from Standard & Poors, and Baa1 from Moody’s. It also has sufficient liquidity, with $103 million in cash at the end of the second quarter.

Federal Realty’s FFO-per-share during the Great Recession can be seen below:

The REIT saw only a small decline in FFO-per-share in 2009, and quickly recovered after the recession ended.

Federal Realty expects to generate an FFO-per-share of $6.79 in 2024, using the midpoint of guidance. As a result, the REIT is expected to have a dividend payout ratio of 65% for 2024 in terms of FFO-per-share.

This indicates a sustainable dividend for a REIT. There is also sufficient room to continue increasing the dividend each year going forward.

Valuation & Expected Returns

At the current share price of $113, and using $6.79 in expected FFO-per-share for 2024, FRT stock is trading at 16.6 times FFO estimates. Meanwhile, our fair value P/FFO estimate for Federal Realty is 12, so we view the stock as overvalued today.

If the P/FFO ratio contracts to 12 over the next five years, annual returns would be decreased by approximately 6% per year. Therefore, valuation is expected to be a headwind to FRT’s future returns.

In addition, FRT has expected FFO-per-share growth of 4.3% per year, plus the current high dividend yield of 3.9%. Total returns are expected to reach 2.2% per year over the next five years.

Fortunately, FRT stock still has wide appeal as a dividend growth investment.

Source: Investor Presentation

The trust has an unparalleled track record among REITs in terms of dividend growth.

Overall, the expected annual returns above 2.2% give FRT a sell recommendation from Sure Dividend.

Final Thoughts

Federal Realty has faced challenges over the years, including multiple recessions and the coronavirus pandemic. Despite these, Federal Realty maintains a 57-year history of annual dividend increases, a feat unmatched in the REIT sector.

Given the trust’s business model, FFO-per-share growth should be reasonably strong. The dividend payout appears secure.

We rate shares of Federal Realty as a sell due to 2.2%+ expected annual returns.

The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:

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