Federal Realty (FRT 0.15%) stands alone among real estate investment trusts (REITs) as a Dividend King. This highly elite group of companies has increased their dividends for at least 50 years. Add in a well-above-market dividend yield of 4.9%, and income investors should be very interested in this high-yield REIT.

But the real story is how Federal Realty managed the feat of becoming a Dividend King. Here's one key aspect of the company's approach you need to understand before you buy it.

What does Federal Realty do?

From a big-picture perspective, Federal Realty's business is centered around owning retail properties. Most of those properties are in strip malls, but it also owns retail-focused mixed use developments. Roughly 80% of the properties it owns have a grocery store component. So far this is all retail 101, since grocery stores generate repeat visits which, in turn, attract other tenants to Federal Realty's properties.

Image source: Getty Images.

The story gets more interesting when you realize that Federal Realty only owns around 100 properties. Its peers tend to grow by adding more and more assets to their portfolios. Federal Realty grows in a vastly different manner.

The first step in the process is focusing on owning well-located properties. That means picking a small number of very attractive markets that have high population density combined with high average incomes. Federal Realty ranks higher on both of those metrics than any of its peers.

But just being in the right place isn't enough. Federal Realty is also a skilled developer and redeveloper.

Upgrades are the key to Federal Realty's success

The real power behind Federal Realty's dividend prowess is that it adds value to the properties it owns. You don't get to Dividend King status by simply buying properties and hoping for the best. You need to operate those assets at exceptionally high levels. Federal Realty does this by adding improvements after buying a new property. But before getting to that point, it is important to note that it is an active portfolio manager.

The goal is to buy well-located assets when their price falls to attractive levels, increase their value through development and redevelopment, and then willingly sell them for the right price. Federal Realty has successfully repeated this process time and time again. The middle part of the REIT's three-step plan is where the magic often happens.

When a new property is acquired, it has usually been neglected in some way by the previous owners. Federal Realty comes in, makes improvements, and adds value. That can be as simple as sprucing up the facade and the general look of the place. Or it can be more material, all the way up to tearing the asset down and starting over again. What comes out the other side is usually a far more valuable and higher-performing property. And the company has a long runway for growth ahead.

FRT data by YCharts.

Federal Realty currently has $515 million worth of development projects taking place within its mixed use properties, where it mostly builds from the ground up. It has another $270 million worth of redevelopment projects throughout the rest of its portfolio. And it has a pipeline of further projects that it can take on that are teed up with designed and entitled projects that just need the final green light.

As if that weren't enough, it is also working on the rezoning of around 7 million square feet of space as a further pipeline of growth projects. Notably, rezoned assets often command higher prices because the groundwork for future redevelopment is complete.

Its dividend success is built from the ground up

Federal Realty didn't become a Dividend King by accident. Management focused squarely on the things it does best, leading with development and redevelopment projects. The growth built into the business model has sustained and expanded the dividend year in and year out. If you are a long-term dividend investor that wants to own the best of the best, this elite REIT should be on your radar screen today. Indeed, it has years of growth ahead already built right into its portfolio.