While a tough economy is putting pressure on many businesses, American Tower (AMT -0.70%) and Tanger Outlets (SKT 0.73%) are well positioned to ride out the storm. American Tower operates in a predictable industry with large barriers to entry, and Tanger provides a strong value proposition to consumers looking for deals.
With both stocks sporting solid dividends, dividend investors would be wise to take a look.
American Tower
When you see a cell tower in the distance, it's likely that none of the major wireless carriers own it. Many cell towers are owned and operated by third parties like American Tower, with wireless carriers leasing space for their equipment. American Tower alone owns more than 225,000 communication assets globally, the vast majority of which are towers.
One reason why the telecom industry evolved in this way is that a tower with only one tenant is a bad investment. American Tower estimates that a single-tenant tower in the U.S. generates a return on investment of just 3%. Adding additional tenants barely increases costs but greatly increases revenue, boosting the ROI well into the double-digits. It doesn't make a ton of sense for wireless carriers to own their own towers for this reason.
Unlike wireless carriers, which are subject to customers delaying smartphone upgrades or downgrading plans during times of economic distress, as well as intense competition for subscribers, American Tower is largely insulated from all these factors. Wireless carriers must collectively pour tens of billions of dollars annually into new network equipment as customers consume an ever-increasing amount of mobile data.
American Tower's leases are long-term and generally non-cancellable, so revenue is mostly predictable. Competition isn't a problem, either. Propping up a new tower is capital-intensive and often involves battling local zoning restrictions. The barrier to entry for the tower business is quite high as a result.
Shares of American Tower have not performed well this year, but the good news for investors is that the dividend yield is now just about the highest it's ever been. Based on the latest quarterly dividend payment, American Tower stock yields about 3.2%.
American Tower is a slow-growing company, but it's unlikely to be disrupted in any meaningful way. Long-term dividend investors would be wise to take advantage of the recent rout in the stock and add American Tower to their portfolios.
Tanger Outlets
No matter the state of the economy, consumers always love a bargain. Tanger Outlets, which operates 36 outlet centers across North America, provides exactly that.
Tanger has staged an impressive comeback after the early stages of the pandemic rattled the retail industry. Occupancy is back up to 96.5%, slightly below historical levels but more than 4 percentage points higher than the pandemic year of 2020. Core funds from operations per share is expected to reach $1.90 this year, up from $1.76 in 2021. That's still below pre-pandemic levels, but there are plenty of opportunities to boost the bottom line in the coming years.
Tanger is working to introduce more non-retail uses to its outlet centers, including food, entertainment, and digitally native concepts. This could draw in new visitors, making the outlet centers more attractive for tenants and potentially pushing up occupancy and rents. Tanger is also looking into ways to better monetize the peripheral land around its centers, which could unlock additional sources of revenue.
Tanger was forced to suspend its dividend in early 2020 because of the pandemic, but the company has since restarted the dividend and grown it substantially. The latest quarterly dividend of $0.245 per share, while still below pre-pandemic levels, represents a dividend yield of about 4.6%.
Investing in the retail industry may not seem all that attractive right now, given that elevated inflation, rising interest rates, and economic uncertainty are putting pressure on consumers. But Tanger's focus on offering consumers value should play well in a tough economy. An impressive post-pandemic comeback coupled with a solid dividend makes Tanger a buy.
