It didn’t take long to Tangier factory outlet centers (NYSE: SKT) go from a dividend-busted stock to a profitable candidate for income investors. The operator of 38 high-end shopping centers announced Thursday that it was resuming its quarterly distributions, an important decision in more ways than one.
When Tangier cuts its first dividend check in a few weeks, it will be its first payment in nine months. The cash distribution of $ 0.1775 per share – or $ 0.71 per share on an annualized basis – represents a return of 6.1% at the time of the announcement (or 5.5% at the end of Thursday given the pop in the actions). In this low interest rate environment, it will turn heads despite the inherent risks that I will be diving into shortly. Most importantly, as a real estate investment company (REIT) Tangier must distribute at least 90% of its taxable income to investors. It announces just two weeks to 2021 that it expects to be profitable this year, and that’s just one of the reasons Tanger Factory Outlet Centers is a buy right now.
Closing of liquidations
There are a lot of risks here. Everyone loves a good deal, but Tangier collects rents from retailers in its sales centers because they are not perfect. Brand name retailers are opening clearance stores because they don’t sell everything they make for a full price. They want to free up shelf space in their full-price stores from liquidations, overstocks, and seasonal products that haven’t worked.
Many of these tenants are financially fragile. Their flagship stores struggle to shed light on traditional shopping malls. They are the victims and future victims of the e-commerce revolution that has left them behind. Tangier has still not received 10% of the rents for the fourth quarter. The operator of the discount mall is attractive in all weather conditions as it offers shoppers more for their money, but the occupancy rate in Tangier which started last year at 97% has fallen to 91.9% at the end of the year.
Bulls will argue that the refresh of its consolidated portfolio is a good thing. Tangier will be able to fill that space with chains that do not file for bankruptcy, making them more desirable tenants than those they will replace. Buyers are to recover. Customer traffic is back to 90% of its year-over-year level, and that’s impressive because there hasn’t been a pandemic or recession that scared shoppers away during the 2019 holiday shopping season. All stores are naturally closed, but the open-air nature of the space between stores probably makes it a slightly safer place to be in the new standard than a traditional indoor mall.
Tangier is not a slam dunk. It’s not just its tenants who aren’t perfect. It’s been a tough year last year, but 2020 has company. The stock has declined for four consecutive years. The high yields – and until early 2020, rising dividend payouts – weren’t enough to make Tangier a winner. The bullish thesis here is that Tangier will carve out a thicker slice of the brick and mortar pie, but the pie itself is contraction.
Fortunately Tangier has time on its side. It has $ 680 million in cash to survive lulls and bad tenants. It has proven to be magnetic to buyers even in these busy times. It is also possible that this payment will increase significantly if funds from operations exceed initial forecasts. This is a high risk stock, but can finally deliver big capital gains stacked on what should be rising payout rates. It’s the only mall operator I’m comfortable owning right now, and that’s why Tanger Factory Outlet Centers is a buy.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link