Shares of Tanger Factory Outlets (SKT 1.33%) have fallen 30% this year due to ongoing concerns about e-tailers disrupting brick-and-mortar retailers. But after tracking Tanger for the past month, I decided to pick up some shares. Here are my top reasons for doing so.

Its business model is widely misunderstood

Tanger was sold off with many other brick-and-mortar retailers, but it's actually a real estate company. The company owns 43 outlet shopping centers across the United States and Canada, which are leased to over 3,100 stores from more than 500 different companies.

A Tanger Factory Outlets location in Fort Worth, Texas.

Image source: Tanger Factory Outlets.

This means that instead of focusing on the sales growth at individual stores at its outlets, investors should study its occupancy and average rental rates. Tanger reported an occupancy rate of 96.1% last quarter. That represents a slight dip from a 96.9% rate in the prior year quarter, but it's superior to most of its industry peers.

Simon Property Group (SPG 2.23%), which owns a wide range of malls and premium outlets, reported an occupancy rate of 95.2% last quarter. Brixmor Property Group (BRX -0.55%), which mainly owns larger shopping centers instead of outlets, had an occupancy rate of just 85% last quarter. This disparity indicates that outlet centers, like off-price retailers, are generally faring better than traditional shopping centers -- and that Tanger is arguably the best "pure play" on the market.

If Tanger was struggling to keep its tenants, its average rental rates would decline. Yet Tanger's blended average base rental rates (excluding eight leases undergoing remerchandising projects) rose 11.7% annually during the first half of the year. Tanger also hiked the average base rent by 10.1% on renewed leases -- indicating that it can still use higher rents to offset declines in occupancy rates.

It offers decent growth at cheap valuations

Tanger's revenue rose 6% last year, and analysts expect 4% growth this year. That slow but steady growth will likely continue as long as e-tailers don't wipe out outlets so that tenants keep moving in or renewing their leases. There are already signs that brick-and-mortar retailers can rebound -- out-of-favor apparel retailers Gap and Guess both recently beat Wall Street's estimates and offered solid guidance for the year.

Tanger's earnings rose 6% last year, but analysts anticipate a 13% drop this year on remerchandising and expansion efforts. However, its earnings are expected to rebound 23% in fiscal 2018 as it completes those projects.

Tanger currently trades at just 17 times earnings compared to the industry average P/E of 34 for discount stores. Simon and Brixmor respectively trade at 29 and 19 times earnings. Tanger's forward P/E of 24 looks a bit pricier, due to its upcoming dip in earnings, but it still looks cheap relative to the industry.

It's an REIT and a future dividend aristocrat

Tanger is a real estate investment trust (REIT), which must pay out over 90% of its taxable income (not to be confused with earnings per share) as dividends to qualify for favorable tax rates. That's why Tanger hiked its dividend annually for 24 straight years -- one more hike will make it an elite dividend aristocrat.

Four piggybanks on a table.

Image source: Getty Images.

Tanger currently pays a forward yield of 5.5%, which is much higher than the S&P 500's current yield of 2%. It spent just 88% of its earnings on that dividend over the past 12 months, so it has plenty of room for future hikes.

Rising interest rates will inevitably cause many dividend stocks to drop as risk-averse investors pivot from blue chip income stocks to bonds, but Tanger's low valuation and high yield could offer more downside than more richly valued income stocks.

Does Tanger belong in your portfolio?

I personally believe that Tanger's low valuation, high dividend, and resilient business model make it a promising long-term income play for conservative investors. However, investors should still keep a close eye on Tanger's occupancy and rental rates. If either of those two numbers significantly decline, it could be time to sell the stock.