Shares of Federal Realty Investment Trust (FRT +1.48%) have slumped more than 10% over the past year. One silver lining of its sell-off is that its dividend yield has risen and is now over 4.5%. Given its elite track record of paying dividends, the real estate investment trust (REIT) looks like a great buy for passive income right now.
This dividend stock reigns supreme
Federal Realty Investment Trust has increased its quarterly dividend for 57 straight years. That's the longest record in the REIT sector. It qualifies Federal Realty as an elite Dividend King, a company with 50 or more years of annual dividend increases.
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What makes that streak all the more impressive is that Federal Realty invests in retail properties. The retail sector tends to be very cyclical and has been facing significant headwinds from the continued adoption of e-commerce. Those factors have forced most other retail REITs to cut their dividends over the years.
Two factors have enabled Federal Realty to avoid that fate. A big one is the quality of its retail portfolio. Federal Realty owns mixed-use properties and open-air shopping centers in first-ring suburban locations of the country's top gateway markets like New York, Miami, Boston, and Los Angeles. It focuses on areas with highly dense populations of high-income earners. That drives resilient demand and growth even during economic downturns. The REIT only owns 103 properties. That's a much smaller portfolio compared to other retail REITs like Kimco Realty, which owns 567 shopping centers around the country. Federal Realty's focus on quality over quantity has really paid dividends for investors.
NYSE: FRT
Key Data Points
Federal Realty also has a very conservative financial profile. It expects its dividend payout ratio to be around 60% of its funds from operations (FFO) this year. That gives the REIT a sizable cushion while allowing it to retain lots of cash to fund new investments. Federal Realty also has a strong investment-grade balance sheet. The company's financial strength gives it a lot of flexibility to weather downturns.
Focused on growing quality, not quantity
Unlike some REITs, Federal Realty isn't building a real estate empire. Its focus is on holding the highest quality portfolio. Because of that, a core aspect of its growth strategy is capital recycling. The company routinely sells mature assets and reinvests the capital into higher-quality properties that grow its FFO per share.
The company recently announced several advancements to its capital allocation strategy. It has closed the sale of its Hollywood Boulevard retail portfolio in Los Angeles for $69 million and a 108-unit residential property (Levare at Santana Row) in San Jose for $74 million. These sales are part of the over $1 billion of potential property dispositions the company has identified across its portfolio. Potential future sales include retail properties as well as office and residential properties not fully integrated with its major mixed-use properties.
Federal Realty is using the proceeds from these sales and its financial flexibility to invest in high-quality properties with more growth potential. It recently spent $289 million to acquire two dominant open-air retail shopping centers in Leawood, Kansas, one of the most affluent and fastest-growing submarkets of Kansas City.
It also approved the construction of Lot 12, a $145 million project to build 258 residential units at Santana Row in San Jose. The company is also constructing a 45-unit residential building with ground floor retail in Hoboken, NJ, and a 217-unit multifamily project in a suburb of Philadelphia, PA.
These investments position the REIT to continue growing shareholder value by increasing its FFO per share. That should allow the REIT to keep pushing its dividend payment higher.
A great opportunity to buy this top dividend stock
Federal Realty has been a phenomenal dividend stock over the decades. The REIT's strategy of focusing on investing in quality over quantity has really paid off. With shares down and the dividend yield up, it's a great buy for passive income right now.
