1 High Dividend REIT You Can’t Ignore

REIT Federal Realty has a long history of dividend payments but with the real estate market still in the grips of high-interest rates, is FRT’s dividend worth buying?

The renowned real estate investment trust has over 60 years of experience and develops high-quality retail-based properties and mixed-use neighborhoods, primarily in the coastal markets of the U.S.

A key feature of REITs is that they pay at least 90% of their taxable income to shareholders as dividends, as per law and IRS regulation, allowing them to deliver competitive total returns while exempting them from most corporate income taxes.

However, there remain threats to a REIT’s performance, including market risks like interest rate hikes and high management or transaction fees. With these in mind, what REITs are worth buying?

Key Points

• Federal Realty sits among a rare group of just 54 firms that have earned the distinguished title of Dividend King.
• As high growth stocks struggle to sustain their upward trends, dividend stocks are increasingly becoming attractive.
• Given its long history surviving numerous economic challenges over prior decades, Federal Realty is an enticing stock.

Long History of Paying Dividends

As a longstanding trust, Federal Realty has a long history of dividend payments. The REIT started paying dividends in the early-1970s. In 1972, its total dividend paid was approximately $0.30. Except for adjustments when the company split its stock in 1982 and 1985, its total dividends have increased steadily.

This was no mean feat given that the trust had to weather the 1973 oil embargo, inflationary periods, financial crises, and the COVID-19 pandemic. Nonetheless, the company has 56 years of consecutive dividend growth, the longest in the REIT industry.

Federal Realty was named in the Time “Dividend Kings” list: a list of stocks that have raised their dividends for a minimum of 50 consecutive years. It is an elite list, with only 54 companies making the cut.

On February 12, the trust declared another quarterly dividend of $1.09 per share, which is payable to shareholders on April 15. Its forward annual dividend of $4.36 yields 4.28% on current prices. However, the company’s dividend payouts have grown at a modest pace over the past three and five years. In 2023, the trust declared $355.24 million in regular dividends, a rise of 3.1% from the prior year. 

How Is Federal Realty Performing?

Over the past two years, Federal Realty’s stock declined by about 14%, but that has been the story of many REITs in an era of rising rate hikes. The iShares Global REIT ETF (NYSEARCA:REET) is down approximately 16% over the same period.

As for its financial performance, the REIT reported an all-time high FFO per share of $6.55, underscoring a growth of 3.6% from the prior year. CEO, Donald C. Wood, believes that the company’s FFO growth was fueled by its multi-pronged business plan and growth initiatives.

On the other hand, the trust’s occupancy rate decreased from 92.8% occupied as of December 31, 2022, to 92.2% as of December 31, 2023. Its leasing activity also saw a yearly decline, with 426 leases signed in 2023 compared to 497 in 2022. The portfolio was 94.5% leased as of December 31, 2022, which fell to 94.2% leased as of December 31, 2023.

The trust’s Property Operating Income (POI) was up 7.2% in 2023, while GAAP-based comparable POI growth stood at 3.2% for the year. Despite facing interest rate headwinds, Federal Realty increasingly invested over $120 million in properties that were only partially owned previously.

According to Federal Realty’s initial guidance for 2024, its FFO per share is slated to be $6.65-$6.87. However, this assumes an increase in occupancy levels from 92.2% to about 93%.

Is Federal Realty a Dividend-Safe Stock?

The last two years have been harsh on the real estate sector due to the Fed’s multiple rate hikes to reduce inflation. Finally, after 11 rate hikes totaling 5.25 percentage points, the Fed’s aggressive actions came to a standstill last year. Going into 2024, there were widespread expectations regarding rate cuts.

However, Fed officials are now touting a cautionary outlook. Fed Chair Jerome Powell has reiterated this cautionary stance by explicitly stating that the Federal Reserve will not cut interest rates unless it is confident that inflation is sustainably moving toward the target 2% rate.

However, “Dividend King” FRT has managed to grow its dividends for more than 50 years straight. While FRT’s occupancy and leasing rates have come down since the prior year, its stellar FFO rise to levels not seen before should bode well for the company’s operations and help maintain the dividends.

Moreover, analysts expect the stock to reach $113.83 in the near term, indicating a potential upside of 11.4%. Of the 12 analysts offering recommendations for the stock, five suggested buying it. The bottom line is this “Dividend King” could be a worthy investment at this juncture, particularly as growth stocks seems to be struggling increasingly.