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When Will Tanger Factory Outlets Boost Its Dividend?

By Rick Munarriz - Feb 18, 2021 at 9:45AM

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The factory outlet center operator just reinstated its quarterly payouts, but a strong quarter makes it highly likely that a dividend hike will happen later this year.

It's been just a few weeks since Tanger Factory Outlet Centers (SKT 2.66%) reinstated its dividend. Don't be surprised if it hikes its payouts soon. 

This isn't just a matter of wishful thinking for a little more quarterly pocket change out of the operator of 38 open-air outlet shopping centers. Tanger announced better-than-expected results on Wednesday afternoon, and as a real estate investment trust (REIT) it has to distribute at least 90% of its taxable income to investors. It's legally obligated to share the wealth with its stakeholders, so what's good for Tanger is just as good for its yield. 

A clothing rack showing clothes at 80% off.

Image source: Getty Images.

Let's go shopping

Tanger Factory Outlet Centers has been recovering dramatically over the course of 2020 since the initial springtime pandemic hit. Funds from operations and core funds from operations clocked in at $0.54 a share for the fourth quarter, not too far off from the $0.59 a share it posted a year earlier when the economy was still expanding and nobody knew a pandemic was coming after the holiday quarter. 

Shoppers are returning to Tanger. Customer traffic was at roughly 90% of where it was during the prior year's fourth quarter. All of its brand-name factory outlets are naturally indoors, but folks generally feel safer at its open-air shopping centers than traditional enclosed malls. The real gem in Tanger's report is that things have only gotten better in 2021. Traffic had improved to more than 99% for domestic centers in January when pitted against the same month a year earlier. 

The snapshot isn't as kind when it comes to Tanger's tenants, but by the end of January it had collected 95% of the fourth quarter's billed rents. Occupancy was down to 91.9% for Tanger's consolidated portfolio by the end of 2020, a far cry from its 97% occupancy rate it was at a year earlier and the 92.9% it was posting at the end of September 2020. Renewals for leases expiring this year are also not as far along as negotiations were a year earlier for tenants with 2020 expirations.

Rental rates are also heading in the wrong direction. This will be a part of Tanger's business that will lag in the recovery since so many brick-and-mortar chains are buckling in the new normal. However, attracting new tenants should be a lot easier now that foot traffic is essentially back to pre-pandemic levels.

Yield signs

Tanger Factory Outlet Centers suspended its quarterly distributions early last year when it was bracing for the impact of the COVID-19 crisis on its business. Its last dividend check was for $0.3575 a share, stretching its streak of distribution hikes back to its 1993 IPO. 

The reinstated quarterly payouts are $0.1775 a share, a little less than half of its earlier rate. It's not a bad treat for its investors, clocking in at a nearly 5% yield based on Wednesday's close. However, Tanger is holding up a lot better than its refreshed disbursements suggest.

Guidance for 2021 that it initiated on Wednesday is encouraging. The midpoint of its net income range of $0.35 a share for the entire year is a little more than half of where its forecast for 2020 was a year earlier. Core funds from operations are expected to clock in between $1.47 and $1.57 a share in 2021, and that's less than a quarter from where its 2020 target was at this point last year. As long as trends continue to improve in terms of shoppers and its tenant situation starts to bottom out we're seeing Tanger turning the corner here. It seems as if it's just a matter of time before Tanger boosts its quarterly dividend again. 

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Tanger Factory Outlet Centers, Inc.
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