Meet the Only REIT That's a Dividend King -- and It's On Sale Again

Relative to the broader stock market, Dividend Kings are a very tiny group. A company becomes a Dividend King after increasing its dividend annually for 50 consecutive years. That doesn't happen by accident: It requires a good business model that's executed well in any economic cycle.

Here's the only real estate investment trust (REIT) to have achieved this feat -- while yielding 4.7% today.

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The only Dividend King REIT

Real estate investment trusts were created so that small investors could benefit from owning institutional-level real estate. REITs typically own properties like apartment buildings, offices, warehouses, and strip malls. They don't pay corporate-level taxes so long as they distribute at least 90% of their taxable earnings out as dividends.

In practice, most REITs pay out more than that, because of the tax-sheltering impact of depreciation. Depreciation is sizable for property-owning REITs, because they're buying massive assets.

Image source: Getty Images.

Shareholders of REITs have to pay taxes on their dividends as if it was regular income, so investors do need to take tax issues into consideration. However, if you buy a REIT in a Roth IRA, the tax benefits of the account basically mean you won't have to pay income on the REIT's dividends, so they'll escape both corporate and personal income taxes.

That means buying a REIT that has a long history of increasing its dividend annually -- such as this Dividend King that has done so for 57 consecutive years -- can set you up for a lifetime of tax-free income if you buy it in a Roth IRA.

And that's probably exactly where you'll want to hold Federal Realty (NYSE: FRT) shares, so you get the most bang for the buck from its 4.7% dividend yield. For reference, the average REIT's yield is 4%, and the S&P 500 index's (SNPINDEX: ^GSPC) yield is around 1.3%.

What does Federal Realty do?

Federal Realty owns strip malls and mixed-use developments, which usually include retail, office, and apartment assets. But the majority of its rents come from retail establishments, so it's best to think of it as a retail REIT. The company is a little different from other REITs, and not just because it's a Dividend King: It has long focused on quality over quantity, owning only about 100 properties.

Management is highly selective when buying a property. It must be located in an area with material population density and high average incomes. The property must be well priced. And it has to offer opportunities for redevelopment, so the value of the asset can be increased over time via capital investments. Functionally, these factors mean that Federal Realty owns properties in and around large cities.

The real key to the REIT's success is its ability to add value through redevelopment. In fact, it often uses difficult economic times to snap up properties at attractive prices so it can create a pipeline of future redevelopment projects. That allows Federal Realty to grow in both good markets and bad ones, since it always has internal capital investment opportunities regardless of economic or market fluctuations. The most recent example was Federal Realty's purchase of properties during the COVID-19 pandemic, which included its first assets in Phoenix, Arizona.

Simply put, Federal Realty has a proven track record of success thanks to a well-honed business plan. And that plan is not only executed well in good times and bad, but can even benefit from bad times. If dividend consistency is important to you as a dividend investor, this is a stock you'll want to have in your portfolio.

Why buy Federal Realty today?

The stock market and the economy are both in a state of flux right now. Federal Realty has a pipeline of internal projects that it expects to support growth for years to come. And yet the uncertainty on Wall Street has led to a decline of roughly 20% in its share price from its 52-week high, pushing the dividend yield up to levels last seen during the pandemic and the Great Recession.

You can find REITs with yields higher than 4.7% -- but Federal Realty is the only Dividend King REIT with a yield that high.

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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.