Dividend Kings In Focus: Federal Realty Investment Trust

Up to date on September twenty fifth, 2023 by Bob Ciura

Shares with very lengthy streaks of dividend will increase are interesting as a result of they generate secure earnings, and pay dependable dividends, even throughout recessions.

Not many firms have resilience throughout financial downturns, so buyers have to be cautious when choosing which dividend shares to personal for the long run.

One group of shares that has stood the take a look at of time is the Dividend Kings, a set of simply 50 shares with a minimum of a half-century of consecutive dividend will increase.

You possibly can see all 50 Dividend Kings right here.

You may as well obtain an Excel spreadsheet with the complete listing of Dividend Kings (plus necessary metrics akin to price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:

Federal Realty Funding Belief (FRT) is a Dividend King that has 56 consecutive years of dividend will increase.

This streak could be spectacular for any inventory, however for a REIT (a sector which is notoriously vulnerable to recessions) this streak is extraordinary.

In reality, Federal Realty is the one REIT on the Dividend Kings listing.

Beneath, we’ll check out Federal Realty’s enterprise and its prospects for persevering with its dividend streak.

Enterprise Overview

Federal Realty was based in 1962 and since that point, it has grown into a big retail-focused REIT that operates in excessive earnings, densely populated coastal markets within the U.S.

Associated: You possibly can see Certain Dividend’s REIT listing right here.

The belief sees these markets as having favorable demographics for the long run by way of inhabitants and earnings progress.

Supply: Investor presentation

This technique of proudly owning premium properties in premium markets has served the belief nicely, and it has grown steadily over time.

Federal Realty additionally has a extremely diversified property portfolio. No single tenant represents greater than 2.7% of Federal Realty’s annualized base lease, or ABR. It has solely 8 tenants with higher than 1% publicity.

Federal Realty has greater than 3,300 tenants in 102 properties, which represents a excessive stage of diversification by way of each tenants and geographic markets.

Progress Prospects

Federal Realty reported Q2 earnings on August 2nd, 2023. For the quarter, FFO-per-share of $1.67 beat analyst estimates by $0.05. Income of $280 million grew 6.3% year-over-year and beat estimates by somewhat over $4 million. The portfolio was 92.8% occupied on the finish of the second quarter, a rise of 80 foundation factors year-over-year.

For the rest of 2023, Federal Realty now sees FFO-per-share in a spread of $6.46-$6.58.

Federal Realty’s progress transferring ahead shall be comprised of a continuation of upper lease charges on new leases and its spectacular growth pipeline fueling asset base enlargement. Margins are anticipated to proceed to rise barely because it redevelops items of its portfolio and same-center income continues to maneuver greater.

Aggressive Benefits & Recession Efficiency

Federal Realty’s aggressive benefit is in its growth pipeline, in addition to its focus and relative dominance of very enticing markets.

The belief has confirmed over time it may possibly produce industry-leading common base rents and that’s as a result of it has confirmed extraordinarily adept at choosing and creating the perfect properties within the U.S.

One other aggressive benefit is the belief’s robust steadiness sheet, which stands out amongst REITs. FRT has a stable credit standing of BBB+ from Customary & Poors, and Baa1 from Moody’s. It additionally has ample liquidity with $1.3 billion money and undrawn credit score facility on the finish of the second quarter.

Federal Realty’s FFO-per-share through the Nice Recession might be seen under:

2007 FFO-per-share: $3.62
2008 FFO-per-share: $3.85 (6.4% improve)
2009 FFO-per-share: $3.51 (8.8% lower)
2010 FFO-per-share: $3.88 (10.5% improve)

The REIT noticed solely a small decline in FFO-per-share in 2009, and rapidly recovered after the recession ended.

Federal Realty expects to generate FFO-per-share of $6.52 in 2023, utilizing the midpoint of steerage. Because of this, the REIT is anticipated to have a dividend payout ratio of 67% for 2023 by way of FFO-per-share.

This means a sustainable dividend for a REIT. It additionally has enough space to proceed growing the dividend annually going ahead.

Valuation & Anticipated Returns

On the present share value of $92, and utilizing $6.52 in anticipated FFO-per-share for 2023, FRT inventory is buying and selling at 14.2 occasions FFO estimates. In the meantime, our truthful worth P/FFO estimate for Federal Realty is 15, which suggests we view the inventory as barely undervalued immediately.

If the P/FFO ratio expands to fifteen over the subsequent 5 years, annual returns could be elevated by roughly 1.1% per yr. Subsequently, valuation is anticipated to be a small increase to FRT’s future returns.

As well as, FRT has anticipated FFO-per-share progress of 4.3% per yr, plus the present dividend yield of 4.7%. Complete returns are anticipated to succeed in 10.1% per yr over the subsequent 5 years.

Thankfully, FRT inventory nonetheless has huge attraction as a dividend progress funding.

Supply: Investor Presentation

The belief has an unparalleled monitor file amongst REITs in terms of dividend progress.

Total, the anticipated annual returns above 10% give FRT a purchase advice from Certain Dividend.

Last Ideas

Federal Realty has had its share of challenges over time, attributable to a number of recessions and the coronavirus pandemic. Regardless of this, Federal Realty maintains a 56-year historical past of annual dividend will increase, a feat unmatched within the REIT sector.

FFO-per-share progress ought to be fairly robust given the belief’s enterprise mannequin. And, the dividend payout seems safe.

We charge shares of Federal Realty as a purchase attributable to 10%+ anticipated annual returns.

The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend progress buyers: