You may have seen headlines to the effect of "Malls are dying," or "E-commerce is crushing physical retail." And to be fair, there is some truth behind statements like that.
Most people know of a mall in their area that is full of empty stores or has even closed down, and there is no shortage of major retail brands that have gone bankrupt or announced extensive store closures in recent years.
However, I'd argue that retail isn't dead -- it's just evolving. And the right kind of retail stocks can still be excellent long-term investments. Here are three retail real estate investment trusts (REITs) in particular that pay excellent dividends, have large addressable growth opportunities, and could deliver market-beating returns for decades to come.
1. Outlet retail is winning in the current environment
Outlet retail has proved to be extremely resilient in recent years, as retailers have embraced the lower cost structure of operating outlet stores, as well as the generally favorable locations of outlet malls. Tanger Factory Outlet Centers (SKT 0.56%) is the only pure-play outlet retail REIT in the market, and its latest results show just how strong the business is.
Tanger's portfolio ended 2022 with 97% occupancy, up from 95.3% at the end of 2021. Same-center net operating income increased by more than 5% year over year.
And it's not hard to see why retailers are embracing the outlet model. Average tenant sales per square foot are 12% higher than comparable pre-pandemic (2019) levels. The outlet industry is still a relatively small part of the U.S. retail landscape, but if the strong performance continues, there could be plenty of room to expand.
2. Retail that can survive e-commerce growth (and recessions)
Realty Income (O 0.09%) owns 11,700 properties, most of which are single-tenant retail. And the portfolio is specifically designed to be relatively immune to both recessions and e-commerce headwinds.
Consider some of the company's top tenants, including Walgreens (WBA 1.51%), FedEx (FDX 0.27%), and Dollar General (DG -0.63%). These are businesses that offer essentials, services that need to be performed in person, and/or product discounts that e-commerce retailers can't match.
The company, which has a 4.6% dividend yield, recently reported its fourth-quarter earnings. And they were boring, in the best possible way. Funds from operations (FFO) -- the real estate version of earnings -- have increased steadily, year after year, for a long time, and continue to do so. No big surprises. Just an excellent business built as a long-term compounding machine.
3. Malls aren't dead, they're just evolving
Simon Property Group (SPG 0.47%) is the largest mall operator in the world, with a portfolio of high-end properties (including those under The Mills brand name) as well as the industry-leading Premium Outlets brand.
From Tanger's results, we saw just how resilient outlets have been, and Simon's high-end malls have become mixed-use destinations with amenities like fine dining, entertainment venues, office space, hotels, and much more.
In other words, these aren't just places to shop -- they are places people want to go, full of non-retail establishments that create foot traffic for the retail tenants.
Simon's latest results show how well its malls are doing. Its retailers report average sales per square foot have increased nearly 6% year over year, which is extremely impressive given the uncertain economy. Occupancy increased by 150 basis points to 94.9% at the end of 2022.
And with nearly $8 billion in available liquidity, Simon has the financial flexibility to make sure its properties remain the best in the business. Simon, a highly profitable company, pays a 5.9% dividend yield that is well covered by its earnings, and there's plenty of room to grow the portfolio from here.
Could these really be 10-bagger stocks?
To be perfectly clear, when I say these could turn $100,000 into $1 million, I don't mean it's going to happen quickly. But these stocks have the potential to significantly outpace the overall stock market's returns over the next decade and beyond, and they could certainly get your portfolio to millionaire status over time.
Consider Realty Income. The company was listed on the NYSE in 1994 and has more than quadrupled the total return of the S&P 500 in its 29-year publicly traded history. Investors who put $100,000 into the stock at the time of its initial public offering would have about $5.4 million today.
