Dividends are back in the spotlight now that money market funds are yielding practically the same as the money you're stashing under your mattress. Even growth investors are starting to warm up to some income-producing stocks, but what about some of the names that have fallen since suspending their quarterly distributions?
Front Yard Residential (RESI), Tanger Factory Outlet Centers (SKT 2.81%), and Six Flags Entertainment (SIX 0.80%) are three companies that stopped paying out dividends when we hit the COVID-19 crisis earlier this year. All three stocks are trading sharply lower in 2020, in large part because the payouts have been nixed. All but one of them have also suffered big hits to their actual businesses, but with the economy showing signs of bouncing back, it may not be long before the distributions return. The yields will be pretty high if they can return to their previous dividend rates given the much lower stock prices. Let's size up all three investments and go over what they would be yielding if they were still sticking to their last standard quarterly disbursements.
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Front Yard Residential
There's a suburbanization trend happening, with folks fleeing New York City and other metropolitan hotbeds to get more bang for their residential buck in the suburbs. With people working, learning, and socializing from home, it makes sense. There are real estate companies cashing in on this trend by buying up a ton of properties in attractive suburban markets and renting them out.
Invitation Homes (INVH 1.04%) and American Homes 4 Rent (AMH 0.25%) are the two leading players in this niche, with portfolios of 79,256 and 53,000 homes, respectively. However, top suburban dog Invitation Homes is currently yielding 2.1%, and American Homes 4 Rent is paying just a third of that to its stakeholders. This is where Front Yard Residential comes in.
Front Yard Residential is a relatively smaller player, with roughly 15,000 homes. The average rent it collects per home is also less than Invitation Homes and American Homes 4 Rent because it aims slightly lower in the rental market. However, it was paying $0.15 a share every three months before suspending its payouts earlier this year -- a rate that would translate to a yield of 6.2% based on Thursday's close.
Front Yard Residential isn't hurting in the pandemic. Its August rent collections are running at 99% of the historical average. Occupancy levels are up with the migration to the suburbs. Front Yard Residential's payouts stopped because it struck a deal to get acquired, but that combination came undone last month. Front Yard Residential is now a swinging single again, and as a REIT operating on healthy adjusted funds from operations, it should be back with a generous yield.
Tanger Factory Outlet Centers
Brick-and-mortar retail is struggling, and like most mall operators Tanger Factory Outlet Centers did have to close its properties in mid-March when the pandemic shut down the economy. Most of its outlet centers are now open and shoppers are returning. Tanger revealed last month that traffic levels had improved to 85% of year-ago levels by July, and traffic levels were closer to 90% for stores that were open longer.
The REIT's final quarterly distribution came in April at $0.358 a share, a rate that would translate to a whopping 25.8% yield based on Thursday's price. Don't get too excited.
In its prime, Tanger would attract 181 million annual visitors to its outlet centers. Things are challenging right now. Many of its tenants are buckling, and while rental collections have been improving through the summer, there is going to be a shake-up within the properties. Tanger is painting this as an opportunity to improve its tenant mix, but it could be a tricky transition. We're also in a recession, but that's where Tanger's emphasis on outlet centers for major brands should hold up better than traditional mall operators.
Six Flags Entertainment
This has been a lost summer for amusement park operators. No one runs as many regional thrill havens as Six Flags does, and it's naturally paying the price. Some of its parks have yet to reopen, and social-distancing norms at the ones that have unlocked their turnstiles call for lower guest counts than last year's season.
Six Flags is the one name on this list that isn't a REIT, but it was offering a beefy dividend to keep up with its closest rival that does operate as a limited partnership. Its last normal distribution was increasing its quarterly rate to $0.83 a share, a move that would equate to a 14.9% yield.
This will be a year of steep revenue declines and deep deficits, but the industry generally resets every year. Most of Six Flags' gated attractions close after the peak summer and Halloween season, only to reopen in the springtime of the following year. A lot can happen between now and next summer. If we are somewhere close to normalcy by next summer, Six Flags will return to profitability. Even in the new normal -- where money is tight and folks aren't traveling -- Six Flags doesn't have to necessarily fail, since as a regional player it draws most of its audience from the local market. Folks opting for staycations or taking advantage of strong promotions on season passes should be back next summer. Its creditors have shown a willingness to work with Six Flags through this rough stretch.
It could be months to a year before the companies return to their payouts, and specifically in the cases of Tanger and Six Flags, it could take a few years before they can reasonably approach last year's distribution rates. However, investors waiting on the sidelines for the dividends to return may want to consider jumping the gun to get in before the inevitable resumption happens.
