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Tanger Outlets Just Reinstated Its Dividend -- Will Other REITs Follow?

Jan 17, 2021 by Matt Frankel, CFP
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The COVID-19 pandemic hit retail real estate investment trusts, or retail REITs, particularly hard. Tanger Factory Outlet Centers (NYSE: SKT) was certainly not an exception. When the coronavirus outbreak began to spread across the United States, its properties were forced to close. And while virtually all of its occupied retail space is now open for business, the pandemic forced several of Tanger's largest tenants into bankruptcy, leading to the company's highest vacancy rate since its 1993 IPO.

However, Tanger just gave investors a big reason to be confident in the company's long-term future by announcing it will resume dividend payments in the first quarter of 2021. Here are the details of the reinstated dividend, why the company feels this is a smart move, and whether other REITs that suspended their dividends might follow in Tanger's footsteps.

Tanger Outlets will start paying dividends again

Tanger announced its Board of Directors had declared a dividend of $0.1775 per share for the first quarter, payable on Feb. 12 to shareholders of record as of Jan. 29.

While this is exactly half of the company's $0.355 pre-pandemic quarterly dividend payment, it still represents a healthy 5.5% dividend yield based on the current stock price. And the fact that Tanger feels confident enough to start paying dividends again is a very positive sign for long-term investors.

Why is Tanger restarting its dividend?

I mentioned earlier that Tanger has a higher vacancy rate right now than at any point in the company's 28-year history. So why would it decide to reinstate its dividend now, instead of waiting until it can fill some of its empty space?

The short answer is that despite its elevated vacancy rate, Tanger is profitable. The company has been cash flow-positive throughout the second half of 2020, and many tenants have already chosen to pay their deferred rent from earlier in 2020. In fact, Tanger's cash on hand doubled from $40 million at the end of the third quarter to more than $80 million presently -- quite a lot in the bank for a REIT with a $1.2 billion market cap, especially when you consider Tanger's total liquidity is almost $700 million.

With 93.5 million outstanding shares of stock, the dividend Tanger just declared translates to a total cost of about $16.6 million for the payment. In a nutshell, Tanger is paying a dividend because it can comfortably afford to.

Will other REITs follow Tanger's lead?

Tanger certainly wasn't the only hard-hit REIT to stop making distributions to shareholders, but it is one of the few that has already comfortably returned to profitability. Just to name a few other REITs that have suspended payouts, hotel REITs like Ryman Hospitality Properties (NYSE: RHP), Host Hotels & Resorts (NYSE: HST), and others aren't likely to resume dividends until travel activity dramatically improves.

EPR Properties (NYSE: EPR), which owns many movie theater properties (among other types) isn't likely to resume distributions until the future of the movie business becomes clearer. And office REIT Empire State Realty Trust (NYSE: ESRT) has already announced its dividend suspension will continue for at least the first half of 2021.

The Millionacres bottom line

Tanger decided to suspend its dividend as the pandemic made the future of its business very uncertain. Although its occupancy and other key business metrics haven't quite returned to their pre-pandemic levels, Tanger's business is profitable and stable enough at this point that management knows where things stand and feels confident resuming income distributions to its shareholders.

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Matthew Frankel, CFP owns shares of Empire State Realty Trust, EPR Properties, Ryman Hospitality Properties, and Tanger Factory Outlet Centers. The Motley Fool owns shares of and recommends Ryman Hospitality Properties. The Motley Fool recommends Empire State Realty Trust, EPR Properties, and Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.