Worried About a Sell-Off? This Record-Setting REIT Has You Covered

Uncertainty is high in the markets today. Both geopolitical issues and economic concerns have created volatility in stock prices. The S&P 500 (SNPINDEX: ^GSPC) has even dipped into correction territory, which is the first stop before a bear market.

If you feel like your portfolio could benefit from some more boring investments, this 4.5%-yielding Dividend King retail landlord should be on your buy list.

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What it takes to become a Dividend King

With 57 consecutive annual dividend increases, Federal Realty (NYSE: FRT) is not just a dividend stock. It is also the real estate investment trust (REIT) with the longest streak of dividend increases, and the only REIT that is a Dividend King. It stands head and shoulders above the pack, with the next closest REIT nearly two decades behind Federal Realty on its dividend streak.

Image source: Getty Images.

With a dividend streak like that, you'd expect Federal Realty to be a giant REIT, but it isn't. It has built that record by focusing on quality over quantity, owning only around 100 properties at a time. That said, the properties are large and well located. Federal Realty basically owns retail-focused shopping assets, largely strip malls and mixed-use assets, in and around densely populated and wealthy regions. The average density of its locations is above that of its peers, as is the average income.

Simply put, Federal Realty's properties are located where retailers want to be located. Thus, it has a very resilient business. The REIT's Dividend King status proves that, and is exactly the type of thing that can help you sleep at night when markets get volatile. Collecting a reliable 4.5% dividend will give you something to think about other than the S&P 500 index's ups and downs.

The proof is in the pudding

What's interesting with Federal Realty is that, if you step back in time, you can see just how resilient its business is to economic adversity. The recession during the pandemic was a bit of an anomaly because the government literally shut non-essential businesses down. That took a toll on Federal Realty's business, but the REIT didn't waver -- it actually used the industrywide pain as an opportunity to buy its way into a new market (Phoenix, Arizona) and to pick up a couple of other assets on the cheap.

Federal Realty can now redevelop those assets, increasing their financial performance and value. This is the normal business approach for Federal Realty, which will eventually sell appreciated investments and start the investment process over again. From a big-picture perspective, however, the Great Recession was a more telling example of what this REIT can do during hard times.

During the 2007-2009 period, there was legitimate concern that the global financial system was on the verge of collapse. The pain started to show up in 2008 for Federal Realty's peers. In that year, Federal Realty's peer group experienced a 2.1% decline in funds from operations (FFO), which is kind of like earnings for REITs. Federal Realty's FFO was 7.5% in that year.

Then things got really bad, with the peer average FFO declining by a whopping 33.2% in 2009. It was bad for Federal Realty, too, which saw an FFO decline of... 2.8%. That was the worst it got for Federal Realty and its peers, but notice how much better Federal Realty performed. In 2010, the peer group's FFO was down another 20%, with Federal Realty posting 2.6% growth. In 2011, the group's FFO fell 3.2%, while Federal Realty's increased 3.1%. It wasn't until 2012 that the group average FFO growth got back into positive territory, after four years in the red.

Federal Realty deftly navigates dangerous waters

There's no telling what the future will hold, but Federal Realty managed through the Great Recession as if nothing big was happening, compared to its peers. During the coronavirus pandemic, it used the downturn to become an even better company. The dividend kept growing through each of these difficult periods.

If you are looking for a safe haven because you are worried about the potential for a market storm, Federal Realty's track record suggests you might want to add this high-yield stock to your portfolio today.

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Reuben Gregg Brewer has positions in Federal Realty Investment Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.