Both Federal Realty Investment Trust (FRT -0.63%) and Realty Income (O -1.15%) are among the most popular real estate investment trusts (REITs) on the stock market. Both companies have quality portfolios, are still managing to grow their business, and pay high-yield dividends.
Not all REITs are created equal, though, and for me one of this pair is clearly the better investment on one particular valuation.
A REIT is basically a landlord, so the revenue it draws from its properties is central to its operations and its value for investors. If you compare the two on a price-to-sales basis, the edge clearly belongs to Federal Realty. Its price-to-sales ratio is just over 6.6 while Realty Income's is 9.1.
Why the discrepancy? I think Realty Income's high degree of popularity is largely the reason; for many investors, the company is the retail REIT. After all, it has a large and globe-spanning portfolio and appeals to income investors as one of the few stocks that pays its dividends on a monthly basis (as opposed to the standard quarterly disbursement).
Realty Income does, admittedly, have a higher dividend yield than its peer (6.8% vs. 4.6% at the moment). But yield isn't everything. Besides, of the two Federal Realty has by far the more distinguished history. In fact it's one of the market's few Dividend Kings, with a 57-year streak of dividend raises. This is the longest run for a REIT, and it blows past Realty Income's 30.
One quite admirable aspect of Federal Realty is that it's very selective about the markets and locations in which it invests; it tends to operate in relatively affluent communities where there is sufficient traffic to support a retail property. Realty Income, on the other hand, is a massive operator that has to juggle a great many facilities and might not necessarily be so discerning.
I like Federal Realty's business strategy, and continue to be impressed by those seemingly endless dividend raises. I also like the fact that it's comparatively quite cheap, so I'd pick it over Realty Income.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.