Is This the Best REIT of All Time?

Best REIT To Buy: When it comes to generating income from a portfolio, few assets are as useful as real estate investment trusts (REITs). These dividend-producing stocks often offer higher yields than bonds while delivering the stability that is associated with the real estate sector.
One REIT, however, stands head and shoulders above the rest: Federal Real Estate Investment Trust (NYSE:FRT). Here’s what you need to know about this trust, its remarkable dividend history and its future prospects.

What Makes Federal Realty Investment Trust So Appealing?

Federal Realty Investment Trust is a well-diversified property REIT with 104 individual properties in its portfolio. These properties are located throughout suburbs of nine large metropolitan areas around the United States. This concentration of holdings in high-demand, affluent markets allows Federal to consistently produce a robust rental income stream.
In addition to having holdings in multiple appealing markets, Federal engages in a mix of commercial and residential real estate. This further diversifies the company’s portfolio and protects it from downturns in the commercial property market.
Federal Realty Investment Trust also has a proven track record of operating at high lease rates, ensuring that its income remains high. In Q1, 93.7 percent of the company’s available units were leased. Comparable residential units represented the highest proportion of leases at 97.7 percent.
Federal has even outperformed the S&P 500 index as a whole over the last several years. On a 20-year basis and adjusting for dividend reinvestment, this REIT has nearly doubled the index’s total return.
While past performance obviously doesn’t guarantee future results, it’s difficult to discount market-beating metrics over a period as varied and volatile as the past two decades.

Best of all, the REIT is in a very good position to continue raising its dividend in the future. In Q1, funds from operations rose by 28.2 percent year-over-year, signaling strong income from Federal’s portfolio.
Guidance for full-year 2022 suggests that earnings could be as high as $2.56 per share. At the moment, the payout ratio from cash flow for Federal shares is only about 58 percent. This gives the trust ample room to expand its dividend without straining itself financially.
Together, these factors make Federal one of the safest and most stable sources of dividend income you can add to your portfolio. As discussed below, this business model has allowed Federal Realty Investment Trust to deliver outstanding dividend performance over decades.

Federal Realty Investment Trust Dividend

At the time of this writing, Federal Realty Investment Trust offered a 3.72 percent dividend yield. This translates to an annual payout of $4.28 per share. While it doesn’t break into the top 10 of the S&P 500, Federal’s dividend is relatively high compared to the yields of most stocks in the market today.
In addition to paying a high dividend yield by today’s standards, Federal is also one of a tiny handful of S&P 500 dividend kings. This is a rare cluster of stocks that sit above even the dividend aristocrats.
These companies have raised their dividends consistently for a minimum of 50 consecutive years. Federal has the longest consecutive dividend increase history of all REITs at 54 years.

FRT Price Forecasts

In addition to its high and remarkably stable dividend yield, Federal could also produce some decent gains in share price for investors over the coming year.
The median 12-month price target for FRT from 16 analyst ratings is $133, a gain of 20.2 percent against the current price of $109.70.
As one might expect from a historically reliable REIT, the range of forecasts is fairly narrow and runs from $125 to $145. This range gives Federal an upside of anywhere from 13 to 31 percent over the next 12 months.
In all forecasted scenarios, the stock should produce good returns for investors who buy now. Though it is not priced as favorably as it was at the start of the pandemic, Federal is still a good value at its current price point.

Should You Buy Federal Realty Investment Trust?

With a strong dividend yield, an increase record that spans more than half a century and a decent amount of near-term upside, it’s hard to make an argument against Federal Realty Investment Trust. This REIT will fit well in practically any portfolio that needs an income component or real estate exposure.
In large part, the success Federal has enjoyed is due to sticking with real estate basics. The company finds properties in the right markets at prices that make sense. This approach has yielded a comparatively small portfolio, but it has allowed Federal to ride out the ups and downs that have plagued other parts of the real estate investment world in recent decades.
Even during the 2008 crisis that swept up several mortgage REITs, this company was able to keep raising its dividends and suffer only modest damage. In terms of consistency, there’s almost nothing that can compare with this REIT.
Federal Realty Investment Trust is also one of the few stocks to have consistently beaten the S&P 500 over a long time horizon. Of course, this assumes dividend reinvestment. However, the ability to beat the market over multiple decades is quite a rare find.
With that said, it’s worth noting that Federal won’t produce any explosive gains. The company has built its reputation on long-term stability and reliability. This is a stock that you can reasonably buy and hold indefinitely for income. While it definitely has the ability to beat the broader market over time, it’s primarily an income stock and not a growth stock.
Overall, Federal Realty Investment Trust is a strong buy for any investor looking to add an income-generating asset to his or her portfolio. With its history of dividend increases, a strong position to continue raising its dividends and a reasonably good chance for decent share price returns this year, this REIT is without a doubt a great asset to own. Even if it doesn’t perform exceptionally well over the next 12 months, Federal should be able to keep its dividend rising for years to come.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.