With the market on pace to wrap up its best August in 30 years, now presents an interesting opportunity to generate attractive upfront income with a dividend capture covered call option strategy on Federal Realty Investment Trust (FRT). This trade may sound daunting because FRT is in the highly challenged “retail REIT” industry, and because this option trading strategy is less common. However, we believe the trade is an attractive one to place today, and potentially over the next few days, as long as the underlying stock price doesn’t move too dramatically and you can get comfortable with the moving parts of this simple yet attractive opportunity. On an annualized basis, the trade will net us up to 17% extra income over the next 47 days.
Federal Realty: A Dividend Aristocrat Among REITs
Despite having just increased its dividend for the 53rd consecutive year, retail REIT Federal Realty Investment Trust (FRT) has been hit hard by the current pandemic. Conditions have started to improve (e.g. more tenants are re-opening and cash collections are increasing), but in order to succeed FRT will need to make smart capital allocation decisions and manage its liquidity carefully (its dividend payout ratio is near the high end of its historical range). This article reviews the health of the business, valuation, risks, dividend safety, and concludes with our opinion on whether FRT is worth considering if you are a long-term income-focused investor.