Federal Realty (FRT): A Dividend King REIT

PUBLISHED Oct 21, 2022, 3:14:43 PM        SHARE

img
imgDividend Power Blog

The overall Real Estate Investment Trust (REIT) sector has been down a lot year to date. For example, the office sector has been down ~21.9% since the start of 2022. The REIT Industrial sector is down ~18% year to date. This decline provides long-term investors with some opportunities in the real estate sector. Federal Realty Investment Trust (FRT) is an undervalued Dividend King REIT yielding 4.7%+.

For example, Federal Realty Investment Trust (FRT) is one company and a Dividend King I have been keeping my eye on, and it looks like an excellent price to pick up some shares as it is near a support level at around $85. The chart below shows that the $80 to $85 level was once a support level two different times. In addition, the stock is trading at $90.61 per share. Thus, FRT looks like an excellent area to pick up share. Next, we will determine if the company is undervalued and deserving of our hard earn money.

FRT Stock Chart

Source: TradingView

Federal Realty Dividend King

Federal Realty (FRT): Dividend King REIT

Affiliate

If you are interested in investing in stocks that pay dividends I recommend signing up for the Sure Dividend Newsletter* . It is a good value and one of the best dividend stock newsletters available. There is a 7-day free trial and grace period so it is risk free. The service provides top 10 stock picks each month with discussion of advantages, valuation, and risks. I highly recommend them and use their insights for my own stock research.

Overview of Federal Realty Investment Trust

Federal Realty Investment Trust (FRT) invests in shopping centers in the Northeastern United States, the Mid-Atlantic states, California, and South Florida.

Founded in 1962, Federal Realty’s mission is to deliver long-term, sustainable growth through investing in communities where retail demand exceeds supply. Its expertise includes creating urban, mixed-use neighborhoods like Santana Row in San Jose, California, Pike & Rose in North Bethesda, Maryland, and Assembly Row in Somerville, Massachusetts.

The company has 105 properties, including approximately 3,100 tenants, 25 million square feet, and about 3,400 residential units. The top 10 tenants are TJX, NetApp, Ahold, Splunk, CVS, GAP, LA Fitness, Albertsons, Michaels, and Home Depot, totaling ~14.77% of the base rent.

FRT is down 36% since its high in January 2022. The main driver of the stock price decrease has nothing to do with the company itself, as earnings are expected to grow 11% in 2022 and are expected to grow 3% in 2023. Instead, it has to do with the increase in interest rates, as this affected all REIT stocks in the markets.

The current stock price of $90.60 (as of this writing) is right at the lower end of the 52-week range, between $86.52 and $140.51 per share. Thus, FRT looks like a stock that seems to be in the right place to buy up shares where both the 52-week range and support line meet.

FRT Overview

FRT Dividend History, Growth, and Yield

We will now look at FRT’s dividend history, growth, and yield. We will then determine if it’s still a good buy at current prices.

Federal Realty is considered a Dividend King, a company that has increased its dividend for over fifty years. In this case, FRT has increased its dividend for 55 consecutive years. Federal Realty is also one of 3 Dividend Aristocrat REITs. FRT’s most recent dividend increase was 0.9%, announced in August 2022.

Dividend Growth

Additionally, according to Portfolio Insight* , FRT has a five-year dividend growth rate of about 2.10%, which is ok. However, it is not as fast as how inflation increased last year and this year. In addition, the 10-year dividend growth rate is higher at ~4.59%. Thus, the dividend growth rate has been slowing down in recent years.

Portfolio Insight - Dividend Growth FRT

Source: Portfolio Insight*

Something essential to note is that FRT continued to pay its dividend during the most challenging period in the last 100 years. Many businesses and industries cut or suspended their dividend payments during the COVID-19 pandemic. However, FRT continued to pay out its dividend and increased them. That is very noteworthy. This fact alone leads me to believe in the strength of the company and the fact that management is focused and committed to the dividend policy.

Dividend Yield

The company has an excellent dividend yield of approximately 4.7%, which is more than double the average dividend yield of the S&P 500 Index. This dividend yield is a respectable initial yield for dividend growth-driven investors. Also, it may be an excellent stock for income-driven investors who want a 4.5% yield or higher. However, with the company’s increasing dividend rate, I can see over a 5% yield on cost (YOC) in the next 5 to 7 years.

Portfolio Insight - Dividend Yield History FRT

Source: Portfolio Insight*

FRT’s current dividend yield is higher than its own 5-year average dividend yield of 3.75%. I like to look at this metric because it gives me a good idea if a company I am researching is undervalued or overvalued based on the current and 5-year average yield. Stock price and dividend yield FRT are inversely related. If the stock price increases, the dividend yield decreases, and vice versa.

Dividend Safety

Let’s determine if the current dividend is safe. This metric is critical to look at as a dividend growth investor. Undervalued dividend stocks sometimes present a “value trap,” and the stock price can continue to decline.

We must look at two critical metrics to determine if the dividend payments FRT is safe every year. The first one is Funds From Operation per share (FFO), and then we must look into Free Cash Flow (FCF) per share or Operating Cash Flow (OCF).

Analysts predict that FRT will earn an FFO of about $6.20 per share for the Fiscal Year (FY) 2022. Analysts are 85% accurate when forecasting FRT’s future FFO. Also, the company misses these estimates 15% of the time. In addition, the company is expected to pay out $4.30 per share in dividends for the entire year. These numbers give a payout ratio of approximately 69.4% based on FFO, a conservative value, leaving the company with much room to continue to grow its dividend. Most REITs tend to have a payout ratio of over 80%.

I am excited by having an 80% or lower dividend coverage with a dividend yield of 4.7% for future growth. At this point, it will allow the company to continue to grow its dividend at a mid-single-digit rate without sacrificing dividend safety. In addition, FRT has a dividend payout ratio of 90.6% on an FCF basis. Thus, the dividend is well covered in both FFO and FCF.

FRT Revenue and Earnings Growth / Balance Sheet Strength

We will now look at how well FRT performed and grew its FFO and revenue throughout the years. When valuing a company, these two metrics FRT are at the top of my list to study. Without revenue growth, a company can’t have sustainable FFO growth and continue paying a growing dividend.

FRT revenues have been growing modestly at a compound annual growth rate (CAGR) of about 5.59% for the past ten years. Net income, however, did much better with a CAGR of ~7.2% over the same ten-year period.

However, according to Portfolio Insight*, FFO has grown 2.9% annually over the past ten years and has a CAGR of 0.8% over the past five years.

Portfolio Insight - Revenue FRT

Source: Portfolio Insight*

Since revenue, net income, and FFO did have good growth over the years, we will determine if this stock is attractive based on its valuation and dividend yield. We will talk about the company’s valuation later in this article. In the meantime, analysts predict that the company will grow FFO at a 5% rate over the next five years.

Last year’s FFO increased from $4.38 per share in FY2020 to $5.57 per share for FY2021, an increase of 27% considering the challenging two years because of the COVID-19 pandemic. Additionally, analysts expect FRT to make an FFO of $6.20 per share for the fiscal year 2022, which would be a ~11% increase compared to FY2021. I like to see future earnings for FRT continue to grow.

The company has a solid balance sheet. FRT does not have an S&P Global credit rating. However, the company has a debt-to-equity ratio is 1.6, which is a decent ratio. Thus, the company has a stable balance sheet to overcome significant economic downturns like the COVID-19 pandemic last two years, adding to the dividend safety.

However, there FRT still risks with an investment in FRT. For example, if there is a recession, this can continue to bring the stock price lower as it did in the Great Recession and during the COVID-19 pandemic, which saw prices decrease 42% and 80.5%, respectively. Also, since this is a retail-type REIT, the company is at risk of more tenants closing locations because more customers are shopping online.

Affiliate

Dividend Power has partnered with Sure Dividend, one of the best newsletters for dividend stock investing. The newsletter comes out monthly and highlights their top 10 picks. A lot of effort goes into analyzing hundreds of stocks, doing much of the work for you. They have over 9,000 subscribers, and it grows every month.

Sign up for the Sure Dividend Newsletter*. You can also use the Sure Dividend coupon code DP41off. The regular price for Sure Dividend Newsletter* is $199 per year and the reduced price through this offer is $158 per year. There is a 7-day free trial and refund grace period as well. So, there is no risk.

If you are interested in higher-yielding stocks from the Sure Retirement Newsletter*, the same coupon code, DP41off, gives ~25% or $41 off. The regular price of the Sure Retirement Newsletter* is $199 and the reduced price through this offer is $158 per year.

If you are interested in buying and holding stocks with a rising income from the Sure Passive Income Newsletter*, the same coupon code, DP41off, gives ~25% or $41 off. The regular price of the Sure Passive Income Newsletter* is $199 and the reduced price through this offer is $158 per year.

FRT Competitive Advantage

Management execution of new properties, either through acquisition or construction of new properties, is its most significant competitive advantage moving forward. Thus, the efficiency to scale is its most crucial growth driver.

FRT Valuation

One of the valuation metrics that I like to look for is the dividend yield compared to the past few years histories. I also want to look for a lower price-to-earnings (P/FFO) ratio based on the past 5-year or 10-year average. Lastly, I like to use the Dividend Discount Model (DDM). I use a DDM analysis because a business ultimately equals the sum of the future cash flow that that business can provide.

Let’s first look at the P/FFO ratio. FRT has a P/FFO ratio of ~15.2x based on FY 2022 FFO of $6.20 per share. The P/FFO multiple is excellent compared to the past 5-year P/FFO average of 21.9x. If FRT were to vert back to a P/FFO of 21.9X, we would obtain a price of $135.78 per share.

Now let’s look at the dividend yield. As I mentioned, the dividend yield currently is 4.7%. There is good upside potential as FRT’s 5-year dividend yield average is ~3.7%. For example, if FRT were to return to its dividend yield 5-year average, the price target would be $116.21.

The last item I like to look at to determine a fair price is the DDM analysis. I factored in an 8% discount rate and a long-term dividend growth rate of 3%. I use an 8% discount rate because of the higher-than-normal current dividend yield. In addition, the projected dividend growth rate is conservative and lower than its past 5-year average. These assumptions give a fair price target of approximately $88.58 per share.

If we average the three fair price targets of $135.78, $116.21, and $88.58, we obtain a reasonable, fair price of $113.52 per share, giving FRT a possible upside of 25.2% from the current price of $90.61 share price.

Conclusion on Federal Realty (FRT): A Dividend King REIT

Federal Realty Trust is a high-quality company and Dividend King that should meet most investors’ requirements. The company has a market-beating 4.7% yield and a long-term dividend growth history. Past earnings growth has been excellent. However, past performance does not mean it will be the same in the future. However, I think at the current price; the stock looks to be attractive.

Disclosure: I do not own shares of FRT

Thanks for reading Federal Realty (FRT): A Dividend King REIT.

You can also read Alexandria Real Estate (ARE): Undervalued REIT by the same author.

Author Bio: My name is Felix Martinez, and I am a Dividend Growth Investor who has invested in dividend growth stocks for the past seven years. I also run a YouTube channel called FiscalVoyage. I have written for SeekingAlpha.com as well as SureDividend.com. I focus on undervalued dividend growth stocks with capital return and dividend income potential. Make sure to follow me on my YouTube Channel. See you there.

Originally Posted on dividendpower.org

FRT, Buy

Federal Realty I...
Return: 15.62%


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
The Top Electric Utility Companies Ranked Best to Worst
Image

Electric utilities are a great way to add dividend income to your portfolio. We rank them by the best income investments during these volatile times.

The Best Water Utilities that Pay Dividends
Image

Water Utility stocks are great sources of dividends and can add more stability to an income portfolio

Intel (INTC) Stock – Too Cheap to Ignore?! | Dividend Investing
Image

Intel (INTC) stock is down 45% this year. The dividend yield has SWELLED up to 5%. As a dividend investor, looking for iconic dividend stocks, Intel stock may have too low of a stock price to ignore.

Dividend Kings In Focus: Lowe’s Companies
Image

Lowe’s traces its roots back to 1921, when LS Lowe founded a hardware store in North Wilkesboro, North Carolina.

Invest in Water Stocks
Image

Water stocks are a unique class of utility equities. Water and wastewater treatment and service is often a municipal function.

The 6 Best Infrastructure ETFs to Buy Now
Image

Infrastructure is necessary to make the world go round in our day and age. Both developed and emerging markets make use of energy and transportation to connect their people.

Alexandria Real Estate (ARE): Undervalued REIT
Image

Alexandria Real Estate (ARE): Undervalued REIT. The overall Real Estate Investment Trust (REIT) sector has been down a lot year to date. For example, the office REIT category has been down 21.9% since the start of 2022. In addition, the REIT Industrial category is down 18% year to date. This decline provides long-term investors with some opportunities in the Real Estate sector.

Up in smoke
Image

Who's ready to get baked

Why Don’t Investors Just Invest in the S&P 500?
Image

The S&P 500 has a long streak of positive returns. So why doesn’t everyone just invest in the S&P 500?

GME Stock Forecast | Price | Quote | News
Image

GameStop Corp. (NYSE: GME), is involved in the business of consumer electronics, video games, and gaming merchandise retailers.

Sonnet Biotherapeutics Holding Inc. | Sonn Stock Analysis
Image

A company called Sonnet Biotherapeutics has been developing a drug that treats inflammatory bowel disease known as Crohn's.

NRG Energy Stock Forecast
Image

NRG stock forecast regarding Return on Equity (ROE) is very bright and optimistic due to its solid income statement, robust balance sheet and rosy ESG outlook. But this stock has its own risks as well.

Recent Stock Purchase September 2022
Image

As you know by now I make a stock purchase every single month no matter what is going on in the world and despite the doom and gloom headlines. Perhaps I am naive or more of an optimist that we will get through these dark financial times somehow.

Will Nike Stock Recover?
Image

Nike is an American multinational corporation that design, develops, manufactures and markets footwear, apparel, equipment and services worldwide.

5 Income Stocks for Retirees
Image

When most people reach the age of 50, they start thinking about retirement. At this age, you need a strategy in place about housing, working, and income before retiring.

Mondelez International: Buy The Snack Giant
Image

Slow and steady wins the race. It holds true for investing in equities because of reversion to the mean. For instance, the latest group of new tech stocks were trading at bubble valuations and plummeted when the Federal Reserve started tightening.

Will it break through
Image

At&t feels good to me this week

10 Solid Picks For A Rocky Market - Zen Investor
Image

I searched for companies that are inexpensive relative to their fair value (margin of safety) and have above-average price and earnings growth prospects.

September 2022 Stock Considerations
Image

With the start of a new trading month, it is time, once again, for me to highlight some of my potential stock buys for September. With all the recent market volatility there is no shortage of stocks that are looking seemingly cheaper when compared to the closing months of 2021.

Monthly Dividend Stock In Focus: Prospect Capital
Image

Business Development Companies — or BDCs, for short — allow investors to generate income with the potential for robust total returns while minimizing the amount of tax that is paid at the corporate level.

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Wise Intelligent
user_profile
Tom Hamilton
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey