Monday, May 11, 2020

Tanger Factory Outlets (SKT) Suspends Dividends

I just read that Tanger Factory Outlets (SKT) is suspending dividends. That's after increasing the dividend in February 2020. This is what I obtained about the dividend from the company's press release:

Tanger intends to pay the dividend of $0.3575 per share declared in January 2020 as scheduled on May 15, 2020 to holders of record on April 30, 2020.  Going forward, given the current uncertainty related to the pandemic's near and potential long-term impact, the Company's Board of Directors will temporarily suspend dividend distributions to conserve approximately $35 million in cash per quarter and preserve the Company's balance sheet strength and flexibility. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis. Tanger intends to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.

It makes sense to conserve cash, when you are able to collect on only 12% of rent that you billed to your tenants. As a result, the company's 27 year record of annual dividend increases is over, and it would be soon demoted from the list of dividend champions. The high-yield dividend aristocrats index already demoted the company in January 2020, because its market capitalization fell below a certain amount. While I held a small position in the the stock, I sold it an year later. I never bought it back, despite the fact that it was very cheap. If I held the stock today, I would have likely sold it at the open tomorrow.

It is an interesting exercise on how companies that are really cheap, and have a low valuation but no growth can turn out to be value traps. When I analyzed the stock in 2017, it looked cheap, and it seemed that just by maintaining the status quo, it could deliver 10% annualized returns through its high dividends and share repurchases. The dividend was also well supported.

Perhaps if we didn't have Covid-19, the company would have paid a dividend for a few more years. Over the past three years since I first analyzed the stock, it has paid $4.16/share in dividends. It is not a lot versus a share price of $26/share in May 2017, but it still represents a 16% rebate on the original purchase price, while also retaining an ownership interest of $6/share (or 23% of original cost). If held in a taxable account, an investor in a 30% tax bracket can generate a $6/share in tax benefits. It is nice to be reminded that dividends represent both a return of investment and a return on investment.

Since Tanger is a Real Estate Investment Trust, it would have to distribute a minimum amount of income to shareholders in 2020, in order to maintain its status and avoid paying taxes as a corporation. This may not be an issue this year after sending out two dividends in 2020. I just do not like that the company held off for so long, before cutting dividends. Investors would have been better off to be warned last year with a small dividend cut, and the company would have preserved liquidity along the way.

Going back to analyzing REITs, I do not look at rent collections as part of my analysis. I always looked at portfolio occupancy, and saw collections as a non-issue. But we grow and we learn. The next crisis will definitely look differently, and hit companies in a different way, which we probably never even imagined.

As an investor, I find it helpful to evaluate my investment decisions after the fact. It is helpful to read the reasons why I bought a stock, and determine where I went wrong, in order to try to improve and avoid the same mistake.

A lot of times, we do not know why an investment would do well or not do as well. Malls and traditional retail have been under siege over the past five years, but I could not have predicted that the economy would have been shut-down by a pandemic. The long-term trends were negative, but I had hopes that there is value left. Yet, other parts of the economy that were flourishing, such as online retail, are doing well as well. You can analyze all you want, but then there is always a chance you will be surprised. You can not research everything about a company.

There have been negative headwinds for the consumer packaged foods companies like Campbell Soup (CPB), General Mills (GIS), J.M. Smuckers (SJM) and Kellogg's (K). However, this pandemic and the pantry loading helped these companies, at least in the short-term this year.

Relevant Articles:

What Dividend Investors Can Learn From Human Resource Departments?
Tanger Factory Outlets (SKT) Dividend Stock Analysis
Three REITs Approaching Value Territory
Simon Property Group (SPG): A High Yield and High Risk REIT

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