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I use my Stock and Stock ISAs to buy stocks that will increase my dividend income. There’s one particular stock I’m buying right now.
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The stock is Federal Realty Investment Trust (NYSE:FRT). It is a real estate investment trust (REIT) that owns and leases 104 properties (mainly retail properties) in eight major US territories.
When I invest in a business, I look for something that sets it apart from its competitors. In the case of Federal Realty, this is the quality of its assets.
In particular, the company’s big profits come from the location of its properties. The Federal Realty portfolio is concentrated in densely populated areas where median income is high.
This is a desirable characteristic for retailers, but space in this area is limited. This makes it nearly impossible for competitors to develop comparable portfolios, giving Federal Realty an edge over other retail REITs.
Federal Realty has proven itself to be a formidable business. Like other REITs, it distributes its income to shareholders in the form of dividends, making it a clear passive income stock.
The company has increased its dividend every year for the last 54 years. That placed him beyond the status of Dividend Aristocrat, making him the king of dividends.
Unsurprisingly, Federal Realty is facing a challenging period during the pandemic. However, since then, the company has recovered well.
Management anticipates an occupancy rate of between 92.5% and 93% by year-end. And also expect funds from operations – a key measure of REIT profitability – to increase by 5% and 9%, respectively.
Overall, I think the outlook for Federal Realty looks strong. The business has a great track record of overcoming difficult conditions and recovering well after its most recent challenges.
Investing in retail properties may seem risky with the rise of e-commerce. As retailers move their business online, the demand for physical stores seems likely to decline.
I agree that the switch to e-commerce will likely result in a decrease in demand for retail properties. But I think Federal Realty is well protected from this threat.
When companies reduce the number of their stores, I expect them to close their least efficient outlets first. Federal Realty’s focus on high-quality assets means typically having more productive stores.
This means that I expect demand for Federal Realty properties to remain strong even as overall demand for retail stores declines. Its asset quality should protect it from e-commerce threats.
Federal Realty has a strong track record and positive outlook. I think its asset quality should allow it to continue to grow even as retailers expand their ecommerce operations.
At current prices, the dividend yield is 4%. I’m happy to buy this on my Stock and Stock ISAs and let the dividends add up.