Tanger Factory Outlet Stock: Market-Crushing High-Yielder Hikes Dividend by 22.5%
June 13, 2023
SKT Stock Is a Real Estate Stock Worth Watching
Just because the economy has fully reopened following the COVID-19 pandemic, it doesn’t mean all industries have rebounded to their pre-pandemic levels. And right now, some stock traders are still wary of investing in the retail industry. Fair enough; everyone in the sector, from Costco Wholesale Corporation (NASDAQ:COST) to Dollar General Corp (NYSE:DG), has been feeling the pinch.
Not Tanger Factory Outlet Centers Inc (NYSE:SKT), though. Recently, the real estate investment trust (REIT) reported strong first-quarter results, increased its full-year guidance, and raised its high-yield dividend. Moreover, Tanger Factory Outlet stock’s price recently hit a 52-week high.
At a time when the retail industry is facing headwinds from high inflation, soaring household debt, and a looming recession, you can’t ask for much more than that.
Tanger Factory Outlet describes itself as “a leading operator of upscale open-air outlet centers that owns (or has an ownership interest in) and/or manages a portfolio of 36 centers with an additional center currently under development.” (Source: “Management Presentation,” Tanger Factory Outlet Centers Inc, April 27, 2023.)
The company’s operating properties comprise about 14 million square feet in 20 U.S. states and Canada.
Tanger Factory Outlet’s properties are leased to more than 2,700 stores that are operated by more than 600 brand-name companies. Five of the REIT’s tenants are Banana Republic, Coach, Hugo Boss, Lululemon, and Pottery Barn. It’s also working on introducing non-retail uses for its properties, including food, entertainment, experiential, and digitally native concepts.
The company’s properties have a 96.5% occupancy rate, with tenants paying $447.00 per square foot, a 0.4% increase from the fourth quarter of 2022. Tanger Factory Outlet has reported eight consecutive quarters of improving rent spreads.
Tanger Factory Outlet Centers Inc Reports Superb Results & Raises Guidance
Tanger Factory Outlet’s solid tenant base, high occupancy rate, and rising rents help it report tremendous financial results.
For the first quarter ended March 31, the REIT announced that its total revenue inched up to $108.94 million, from $108.86 million in the same quarter of 2022. (Source: “Tanger Reports First Quarter Results and Increases Full-Year Guidance,” Tanger Factory Outlet Centers Inc, April 27, 2023.)
The company’s first-quarter 2023 net income climbed by approximately 15% year-over-year to $23.3 million, or $0.22 per share. Its same-center net operating income grew in the first quarter of 2023 by 7.4% year-over-year to $83.6 million.
Tanger Factory Outlet Centers Inc also generated funds from operations (FFO) available to common shareholders of $52.0 million, or $0.47 per share, compared to $49.4 million, or $0.45 per share, in the same quarter last year. Its core funds from operations (CFFO) in the first quarter were $51.2 million, or $0.46 per share, compared to $49.4 million, or $0.45 per share, in the same prior-year period.
“Our strong first quarter 2023 results reflect the continued execution of our strategic plan,” said Stephen Yalof, the company’s president and CEO.” (Source: Ibid.)
He continued, “Sales productivity grew sequentially on improved traffic during the quarter. We are seeing robust leasing activity with accelerating double-digit rent spreads as our retailers demonstrate their commitment to the outlet channel and Tanger’s open-air portfolio, leading to higher fixed rents and expense recoveries.”
Based on Tanger Factory Outlet Centers Inc’s first-quarter results, management increased their full-year guidance. For 2023, the REIT currently expects to report:
- Net income per share in the range of $0.89 to $0.97, up from a previous guidance range of $0.87 to $0.95
- FFO per share in the range of $1.83 to $1.91, up from a previous guidance range of $1.81 to $1.89
- CFFO per share in the range of $1.82 to $1.90, up from a previous guidance range of $1.80 to $1.88
Tanger Factory Outlet Stock’s High-Yield Dividends on the Rise
Unlike many companies in the retail sector, Tanger Factory Outlet has been raising its dividends over the last two years. Since the start of 2022, the REIT has raised its quarterly payouts three times.
In April, management announced a quarterly dividend of $0.245 per share, for a current yield of 4.6%. This payout, which was made in May, represents a 22.5% increase over the $0.20 per share that SKT stock paid out in the same period last year, and an 11% increase over the $0.22 per share it paid out in the previous quarter. (Source: “Dividends,” Tanger Factory Outlet Centers Inc, last accessed June 12, 2023.)
Is Tanger Factory Outlet stock’s dividend safe?
Yes. In the first quarter, the REIT generated FFO of $0.45 per share, which resulted in an FFO payout ratio of just 48.8%. The low payout ratio means that, even if Tanger Factory Outlet Centers Inc’s business slows down, the company has more than enough financial wiggle room to cover its dividends. On top of that, if management wants, there’s plenty of room to announce additional dividend increases.
Bullish SKT Stock Up 35% Over Last 12 Months
Excellent industry metrics have been helping Tanger Factory Outlet stock crush the broader market. On June 7, shares of Tanger Factory Outlet Centers Inc hit a new 52-week high of $22.37. Currently trading in its highest range since April 2017, SKT stock is up by about:
- 15% over the last month
- 20% over the last three months
- 25.5% year-to-date
- 35.7% year-over-year
In comparison, the S&P 500 is up by:
- 4.0% over the last month
- 7.5% over the last three months
- 11.7% year-to-date
- 4.2% year-over-year
Tanger Factory Outlet stock has also been leaving its peers in the dust. The Vanguard Real Estate Index Fund ETF (NYSEARCA:VNQ) has been having a mixed year. As of this writing, the exchange-traded fund (ETF) is:
- Up by 0.6% over the last month
- Down by 2.0% over the last three months
- Up by 1.6% year-to-date
- Down by 11.9% year-over-year
Chart courtesy of StockCharts.com
The Lowdown on Tanger Factory Outlet Centers Inc
The retail industry has been facing economic headwinds, but the outlet business has been a bright spot recently, resulting in high demand for Tanger Factory Outlet Centers’ properties.
The REIT has been opening new locations, it has a solid balance sheet, it reported outstanding first-quarter financial results, it increased its full-year guidance, and it hiked its high-yield dividends.
For high-yield income investors, Tanger Factory Outlet Centers Inc has also been proactively managing its balance sheet and liquidity. This has been giving management the flexibility to execute long-term growth strategies and create value for SKT stockholders.
