Dividend stocks have historically beaten the market. During the past 50 years, dividend-paying stocks in the S&P 500 have delivered an average annual total return of 9.2%, according to data from Hartford Funds and Ned Davis Research. That outperformed the 7.7% average annual total return of the equal-weighted S&P 500 index.
Mid-American Apartment Communities (MAA 1.19%), Extra Space Storage (EXR 0.60%), and Tanger Factory Outlet Centers (SKT 2.01%) are among the many dividend stocks with a history of outperformance. Despite their track records, these high-quality dividend payers are currently on sale. That makes them stand out as attractive investment opportunities to a few Fool.com contributors right now.
This major apartment owner has been sold off, and maybe now's the time to buy
Marc Rapport (Mid-American Apartment Communities): Mid-America Apartment Communities, which goes by MAA, is a real estate investment trust (REIT) that lays claim to one of the nation's largest collections of multifamily properties, a portfolio that now numbers about 300 apartment communities and 102,000 units.
NYSE: MAA
Key Data Points
These apartments are primarily in markets such as Houston, Atlanta, and Dallas, as well as Charlotte, North Carolina; Austin, Texas; Nashville, Tennessee; and Orlando and Tampa, Florida, all of them Sun Belt metro areas with strong job and population growth.
This residential REIT represents an attractive opportunity for investors interested in both a reliable income stream and a share price that has fallen by about a third from its peak in late 2021 to what could well be a bargain level. And it has a strong history to build on.
MAA has been public for 28 years and during that time has paid 117 straight quarterly cash dividends and raised the payout every year for the past 13 years. That kind of performance adds up. This chart shows how well MAA has performed in total return -- a combination of dividends and stock price movement -- over the past 10 years against two benchmark exchange-traded funds, the Vanguard Real Estate ETF for a sector comparison and the Vanguard S&P 500 ETF for the greater market.
Data source: YCharts VOO Total Level
Rising interest rates and concerns over the ability to continue raising rents at the breakneck pace that marked the pandemic market have depressed shares of REITs such as MAA, which at about $150 a share is more than 20% off its 52-week high of $192.68.
That lower price has pushed the yield up to about 3.6% and the long-term prospects for a company with such strong finances and a great business point to it being a stock on sale to consider now for a nice buy-and-hold for conservative investors interested in growth and income alike.
The market leader is on sale
Matt DiLallo (Extra Space Storage): Extra Space Storage has been a phenomenal stock over the past decade. The self-storage REIT delivered the highest total returns in the entire REIT sector during that period, with an average annual total return of 17.2%, easily outpacing the S&P 500's 12.2% return. A big driver of those outsize returns has been its rapidly rising dividend. Extra Space has increased its payout by 548% during the past decade.
NYSE: EXR
Key Data Points
That sector-leading performance has come even though the REIT has cooled considerably over the past year. It's down about 30% from its 52-week high. Weighing on shares are concerns about the impact of higher interest rates and a slowing economy on its operations.
There were some signs of those affects in its recent first-quarter report. While Extra Space's same-store revenue increased by 7.4% and net operating income rose by 8.7%, its adjusted funds from operations (FFO) only increased by 0.5%.
However, a rebound awaits. The company recently agreed to acquire rival Life Storage to create the largest self-storage REIT. Extra Space expects the deal to boost its FFO in the first year while accelerating the long-term earnings growth of the combined company. Meanwhile, it will preserve its financial strength, allowing it to continue investing in expanding.
The growth from the Life Storage deal and other future investments should enable Extra Space to continue increasing its dividend. Meanwhile, given the recent sale in the share price, that payout yields an attractive 4.3%.
Tanger is experiencing double-digit rental spreads
Brent Nyitray (Tanger Factory Outlet Centers): Tanger Factory Outlet Centers is one of the largest owner/operators of open-air, upscale outlet centers in the U.S. and Canada. As of Dec. 31, Tanger operated 29 outlet centers with gross leasable area of 11.4 million square feet. The company has 2,200 stores representing 600 different retail brands.
NYSE: SKT
Key Data Points
The outlet center concept involves brands selling merchandise at a substantial discount to department stores or their own full-price channels. The outlet centers are located far enough away from shopping malls to ensure that the outlets don't compete directly with the department stores or specialty stores. These outlet centers are usually located off the interstate and are intended to be a destination.
In the first quarter of 2023, Tanger reported that funds from operations (FFO) rose to $0.47 per share from $0.45 in the first quarter a year ago. The company reported strong leasing activity with double-digit percentage leasing spreads. Leasing spreads are the difference between the new lease and the expired lease. In the first quarter of 2023, blended lease spreads rose 13.8%. Occupancy at the end of March was 96.5% compared to 94.3% a year ago. Consumer spending remains strong and sales per square foot are increasing.
Tanger recently raised its quarterly dividend by 11% to $0.245 per share. This gives the company a dividend yield of about 5%. The company also increased its full-year 2023 forecast. The company now anticipates FFO per share of $1.83 to $1.91, up from the previous estimate of $1.81 to $1.89. At the midpoint of the new estimate, Tanger is trading at a price to FFO ratio of 10.3 times. This is cheap for a market-leading REIT.
