Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.
This week’s entry will focus on:
Federal Realty Investment Trust – FRT
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Overview
Federal Realty Investment Trust is a real estate investment trust which owns and operates high-quality retail-based properties located primarily in:
- New York
- Philadelphia
- Washington, D.C.
- Boston
- San Francisco
- Los Angeles
- Miami
- Phoenix
- Chicago
Federal Realty’s mission is to deliver long-term, sustainable growth through investing in communities where retail demand exceeds supply. These unique and vibrant environments that combine shopping, dining, living and working provide a destination experience valued by their respective communities.
Federal Realty, which was founded in 1962, has 106 properties that include approximately 3,100 tenants, in 25 million square feet, and approximately 3,200 residential units.
(Source: Company Website)
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Metrics:
Dividend Amount: $4.28
Dividend Yield: 4.2%
5 Year Dividend CAGR: 1.93%
Dividend Payout Ratio: 70.63%
Years of Dividend Increases: 54 Years
Funds From Operations (FFO):: $6.06
P/FFO: 16.00
Analyst 5 Year FFO Growth Estimate: 6.70%
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Valuation:
Current Price: $101.95 (6/10/22)
DCF (10% RRR): $108.92
P/FFO Mean Reversion:$126.84
Dividend Yield Theory: $116.13
Average of the three: $117.30
Analyst 1 year Price Target: $134.35
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Commentary:
Federal Realty is the only REIT Dividend King, having increased its quarterly dividends for 54 consecutive years, the longest record in the REIT industry.
The company focuses on mixed-use developments that include retail, office, and residential units. In May 2022, Federal Realty released their Q1 2022 earnings report and stated that the portfolio was 91.2% occupied and 93.7% leased. The company also increased 2022 FFO per diluted share guidance to $5.85 – $6.05.
FRT has raised its dividend for 54 years, with the current yield at 4.20% and their 5 year dividend CAGR is 1.93%. This dividend CAGR is very low and does not keep up with inflation. The raises are lower than the company’s projected FFO growth rate but the payout ratio is reasonable.
The company’s revenue from rent has been stable over the past 5 years but no meaningful growth, even with the continued acquisition of new properties. The stock has mirrored this flat growth, having actually declined 18.23% over the past 5 years, compared to the S&P’s return of 60.41%, significantly underperforming the index, even with the dividends included. Over the past year the stock is down 16.45%.
FRT is a stable company, with a long history of growth and paying a reliable dividend. As the longest paying REIT and a member of the S&P 500, there is a level of stability that is not common in the REIT industry, but the low growth of the dividend and the anemic share price results are concerning. The current price has come down 25.21% so far this year, performing worse than the overall market, and appears to be a decent value, showing it is currently undervalued based on all of the valuation methods shown above. The dividend is high but the dividend growth is low and stock price historically underperformed the market, as such this stock does not fit my investment criteria.
Disclosure: I do not own shares of FRT.