Tanger: Outlet Pioneer

10/06/2015 8:00 am EST

Focus: REITS

Briton Ryle

Editor, The Wealth Advisory

We don’t have much of retail exposure in our model portfolio, so I am going to return to a stock that we already owned once and sold for a 30% gain, explains Briton Ryle, editor of The Wealth Advisory.

Tanger Outlets (SKT)—a family-run business that pioneered the outlet mall industry—is back at our original entry point and looks like a solid buy.

Starting in 1981 with one outlet mall in North Carolina, the company now has 47 outlet malls in 24 states and it is expanding into Canada.

In a testament to the popularity of the outlet mall concept, the company has kept occupancy rates at 95% or above every year since it IPO’d in 1993. The current occupancy rate is around 97%.

Tanger has also raised its dividend every year since it has been public. In 2015, the dividend was hiked 18% to $1.14 a share.

Tanger keeps a large and diverse group of retailers at its malls and consumers get a large variety of goods that are often heavily discounted. That’s why Tanger Outlets gets 185 million shoppers a year.

Many of its outlet malls near vacation destinations like Ocean City, Maryland, Hilton Head and Myrtle Beach, South Carolina, and Nags Head, North Carolina.

This is a shrewd strategy to make a visit to Tanger part of annual vacations, a time when people tend to spend their money.

I think we are once again catching Tanger at a great time. On the macro front, unemployment continues to improve and the wealth effect is helping spending.

For Tanger, current expansion plans will grow the company 20% in the next two years. That’s fantastic growth and will push revenues, dividends, and the stock price higher.

Tanger’s balance sheet is in great shape. The company has among the lowest percentage of debt in the entire REIT space and it has lots of available credit.

With the shares just off a 52-week low, we think this is an opportune time to get back into Tanger Outlets. It is a strong buy under $33. I have a 12-month target of $39 per share.

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