Worried About a Recession? This Unstoppable Dividend Stock Has Paid Investors a Growing Passive Income Stream in Each of the Past 4 Downturns.

The stock market has taken a tumble in recent weeks due to concerns that we could be heading for a recession. Economic downturns can be difficult times for companies because they can impact their profitability. That forces them to cut expenses, which can include their dividend payments.

A dividend cut isn't something investors in Federal Realty Investment Trust (NYSE: FRT) will need to worry about. The real estate investment trust (REIT) has increased its dividend payment during each of the past four recessions. Because of that, it has an unbroken streak of 57 straight years of dividend growth, which is the longest in the REIT industry.

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Quality over quantity

Federal Realty Investment Trust has a very simple investment strategy. The REIT owns, manages, and develops/redevelops mixed-use properties and high-quality open-air shopping centers across nine metro areas. It concentrates on owning properties in first-ring suburban locations with dense populations of highly affluent consumers.

Its portfolio currently consists of 102 properties with 27 million square feet of space leased to 3,500 commercial tenants. In addition, it has 3,100 residential units at those properties. That's a much smaller portfolio than leading retail REIT Kimco Realty, which has 586 properties with 101 million square feet of leasable space from coast to coast.

Federal Realty doesn't want to own the biggest retail property portfolio. Instead, it wants to have the highest-quality portfolio. These properties tend to hold up better during a recession thanks to the more affluent consumers who shop at its locations. That has enabled the REIT to more than double its funds from operations (FFO) per share over the past 20 years, which included two notable recessions:

As that chart shows, Kimco Realty's FFO per share still hasn't recovered from the financial crisis, while Federal Realty's is up more than 130% since 2005.

Instead of growing just to grow, Federal Realty is always working to high-grade its portfolio by selling lower-quality properties and recycling that capital into higher-quality investments. For example, last year, it sold its Third Street Promenade assets in Santa Monica, California, for $120 million to continue its strategy of optimizing its portfolio and strengthening its balance sheet. That sale helped fund the $215 million acquisition of Virginia Gateway, an irreplaceable regionally dominant retail center.

More growth ahead

Federal Realty has multiple drivers that should enable the REIT to continue growing its FFO per share and dividend. Accretive acquisitions like Virginia Gateway are one growth driver. The company most recently bought the Del Monte Shopping Center in Monterey, California, a dominant retail destination in a high-income regional market. Acquisitions like those provide incremental sources of growing income.

Meanwhile, the REIT is always looking for ways to enhance its existing properties through redevelopment and expansion projects. It currently has several projects underway across its portfolio. For example, it recently announced a residential development in New Jersey to build a five-story residential building with 45 units and 10,200 square feet of ground-floor retail space. It's also redeveloping the Andorra Shopping Center in Pennsylvania to construct 50,000 square feet of space for a new grocery tenant and other tenants. These projects should generate mid- to high-single-digit returns for the REIT.

Finally, its well-located portfolio of high-quality retail properties delivers steady income growth. The strong demand for space in its properties enables Federal Realty to raise rent while keeping occupancy levels high. These factors alone should deliver low- to mid-single-digit income growth from its existing properties.

A high-quality dividend stock

Federal Realty Investment Trust is all about the quality of its real estate portfolio. The REIT focuses on owning the best retail and mixed-use properties in highly affluent areas, which drives continued strong occupancy levels and rising rental income. Meanwhile, it's always looking to improve its portfolio by adding new high-quality properties and enhancing existing locations to further boost its income. It's a cycle-tested approach, which should continue paying dividends for investors through future recessions.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.