The coronavirus pandemic was rough on retail landlords like Tanger Factory Outlet Centers (SKT 0.69%). They essentially had to shut down early on as the government asked non-essential businesses to close, pushed work from home wherever possible, and asked people to practice social distancing. Now, in mid-2022, it looks like Tanger is back on the growth path in more ways than one. Here's what you need to know.
The dividend tells a story
Dividends are a tangible return on your investment in a company. Real estate investment trusts (REITs) are specifically designed to pass on material amounts of cash to investors through dividends, as they can avoid corporate-level taxes by distributing 90% of taxable earnings. Before 2020, Tanger had amassed an enviable dividend record, with decades of annual increases under its belt.
That all ended when the pandemic hit. Uncertainty was high, and the company wanted to ensure that it had ample cash to support its business through the health crisis. The easiest way to limit cash outflows for a REIT is to trim the dividend. All of the mall REITs went this route, with Tanger choosing to fully eliminate the payment for two full quarters.
There was a logic in that move. First, the company wanted to ensure that it could keep paying its employees. In fact, to management's credit, early in the pandemic the top brass even took pay cuts so the REIT could avoid layoffs. While there was a very real financial cost to that decision, the benefit of maintaining a loyal workforce cannot be underestimated. Malls need to keep up a high level of maintenance to ensure that they are desirable for customers and lessees. It isn't hard to imagine that Tanger's employees were -- and still are -- willing to go the extra mile in that regard, thanks in some part to their level of job security during the pandemic.
Second, Tanger wanted to support its lessees, giving a general rent concession to every tenant early on in the pandemic. Again, the logic is pretty simple: A full mall is far more attractive than an empty one. So lending a helping hand to lessees when they most needed it not only kept the REIT's discount centers as full as possible when they reopened, but it likely made tenants a little extra loyal.
You can't fully understand the decision to cut the dividend from $0.36 per share per quarter to zero without stepping back and appreciating these facts.
Back to growth
As the world started to deal with the impact of the pandemic, however, Tanger had a better view of its situation and reinstated the dividend at $0.1775 per share in early 2021. That was well off the pre-cut level of $0.3575, but given the ongoing headwinds not unreasonable. Notably, even before the pandemic there were some concerns that Tanger's dividend was too high.
But merely bringing back its dividend, however, wasn't enough to suggest that Tanger had moved on to a new phase. That's where the dividend increase in the fourth quarter of 2021 and a second hike in April of 2022 come in. The first increase was to $0.1825 per share, a somewhat miserly 2.8% increase. However, the second dividend hike came just two quarters later, pushing the dividend up to $0.20 per share. Across the two increases, which occurred relatively quickly for a REIT with a history of increasing only once per year, the dividend has now grown by nearly 13% since it was reinstated. True, it's still not back to what it was, but Tanger has clearly shifted back into dividend growth mode. Investors should generally be pleased with that.
Meanwhile, Tanger's dividend yield, at around 4.7%, is fairly generous relative to the S&P 500 Index's 1.3% yield and the 2.2% yield of the average REIT, using the Vanguard Real Estate Index ETF as a proxy.
The exciting news continues for Tanger investors: the company green lit a new development and broke ground on a Nashville outlet center in mid-May. Tanger doesn't start a new project until it has material buy-in from retailers, so this decision wasn't one taken lightly. The project is slated to open in the fall of 2023.
Time for investors to shift gears
Tanger's financial results have stabilized following the pandemic, and it has started to reward investors accordingly with dividend increases. And with a new mall slated to open in 2023, it looks like growth is set to pick up again for this factory outlet center-focused landlord. If history is any guide, that suggests that more dividend increases are in the cards. Tanger appears to officially be back in growth mode.