With the stock market at record highs and an average dividend yield of just 1.73% from the S&P 500, it can be extremely difficult to find stocks that pay a decent dividend and don't trade for an expensive valuation.

One place long-term investors should look is the real estate sector, as it has been one of the worst-performing parts of the market thanks to rising interest rates. Some equity REITs look like fantastic long-term opportunities, and here are two in particular that I would buy right now (one of which I already did).

Middle of a one-dollar bill ripped out, with the word dividends in its place.

Image source: Getty Images.

Company (Stock Symbol)

Recent Stock Price

Dividend Yield

P/FFO (Midpoint of 2017 Guidance)

Tanger Factory Outlet Centers (NYSE:SKT)

$25.13

5.5%

10.3

Life Storage Inc. (NYSE:LSI)

$83.92

4.8%

15.9

Data source: TD Ameritrade. Prices and dividend yields as of Jan. 15, 2018.

The right kind of retail to invest in

One dividend stock that I added to my own portfolio recently is Tanger Factory Outlet Centers, a real estate investment trust (REIT) that owns and operates outlet malls under its well-known brand name.

Tanger Outlets is a long-term value play. Over the past year, while the stock market seemingly reached new record highs every week, retail was one of the worst-performing parts of the flat real estate sector. In fact, Tanger Outlets' stock has dropped by 29% over the past year, underperforming the S&P 500 by more than 50 percentage points. Take a look at the company's rock-bottom P/FFO valuation in the chart above -- it doesn't get much cheaper.

^DJER Chart

^DJER data by YCharts.

It's not hard to see why retail-related investments had a tough 2017. More than 20 high-profile retail bankruptcies took place, and many more store closures and other signs of struggling retailers came to light throughout the year.

However, Tanger is invested in a type of retail that is doing quite well -- discount-oriented retail. While outlet sales have pulled back a bit over the past couple of years, Tanger is in no danger of mass tenant losses or any of the issues plaguing full-retail shopping centers. Tanger's portfolio remains 97% occupied, and more than three-fourths of the company's leases don't expire until 2020 or later.

Tanger's discount-oriented retail real estate is less vulnerable to e-commerce headwinds than full-price retail. After all, part of the fun of outlet shopping is to hunt for bargains that you can't find online. Not only that, but it's also quite recession-resistant. As CEO Steven B. Tanger says, "In good times, people love a bargain, and in tough times, people need a bargain."

Tanger has raised its dividend every year since its 1993 IPO and by an impressive annualized 12% rate. And with a presence in just 22 U.S. states and Canada so far, there's lots of room for growth.

An up-and-comer in a fragmented industry

Even if you're familiar with the self-storage industry, you may not be too familiar with the name Life Storage. It's not because the company is new -- Life Storage has 32 years of operations under its belt. Rather, it could be because until 2017, the company was known as Sovran Self Storage (former ticker symbol SSS) and operated its facilities under the Uncle Bob's Self Storage brand name.

Life Storage is a rapidly growing company, with more than 700 self-storage facilities in 28 states, and has spent $2.3 billion on acquisitions over the past two years -- lots of growth for a company whose market cap is under $4 billion.

The company's strategy is simple. Grow its presence in fast-growing markets and operate top-notch facilities that customers feel comfortable storing their belongings in. Thanks to the recent acquisitions I mentioned, Life Storage's average facility now has 14% more people living within a five-mile radius, and generates 13% more revenue than the company's preacquisition average.

There is also significant room to redevelop many of the company's existing properties, which generally produces a high rate of return on investment. This includes modernizing the facilities and adding more climate-controlled storage options to its properties.

Finally, the Life Storage rebranding has helped the company accelerate its third-party management program, under which it manages storage facilities it doesn't own, but under the Life Storage brand. In fact, the company projected management fees to increase by an impressive 67% for the full-year 2017.

The self-storage industry is a highly fragmented one, with a handful of big operators and a ton of smaller chains and mom-and-pops facilities, so there should be no shortage of opportunities for growth in the years ahead.

Matthew Frankel owns shares of Tanger Factory Outlet Centers. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.