2 Hated Dividend Stocks to Buy Now

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Consumers are making notable changes to the way they shop today. That's a big negative for 3.8%-yielding General Mills (NYSE: GIS) and 6.7%-yielding Tanger Factory Outlet Centers (NYSE: SKT). Investors have been pretty downbeat on both names recently, but there's good reason to ignore the crowd and do a deep dive. Here's why these two hated dividend stocks are still worth buying today.

A shift toward healthy

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One of the biggest issues facing packaged food companies like General Mills is that consumers are favoring food considered fresh and healthy. That's left General Mills and many of its peers out of step with the market. Worse, General Mills recently closed a big acquisition that increased its long-term debt by roughly 75% in a single quarter. And some industry watchers are concerned it overpaid for the asset.

However, the acquisition of healthy pet food maker Blue Buffalo has helped to return General Mills' top line to growth with a brand that resonates with consumers. And the company is well aware of the debt overhang, having already reduced its long-term debt by 8.5% in about a year's time. Meanwhile, it plans to hold the dividend steady until leverage is back to historical levels. But with a yield that's at the high end of its historical range, investors shouldn't be too dismayed by the lack of near-term dividend growth.

General Mills has been active in other areas as well. For example, it is expanding the reach of Annie's, a smaller "healthy" brand it bought not too long ago, to grow that business. And it is reworking some of its older brands, like Yoplait, to introduce new varieties that are more on target with today's consumers. Essentially, General Mills is working to shift its business to better serve its end customers. This is a transition that the over 100-year-old company has made before, but it takes time to work through periods like this. The swift increase in debt adds some uncertainty, but General Mills realizes that and is working on it.

All in, the risk/reward balance here suggests it's a good buy even though investors have pushed the stock roughly 30% below its 2016 peak.

A shift toward the web

Tanger is suffering through another retail transition, this one driven by consumers increasingly buying things online. It's been so bad for the retail sector that Wall Street has created a fancy name for it: retail apocalypse. Sounds horrible, and it has been for some retailers and landlords, but the long-term impact here is probably overblown.

That doesn't mean that outlet center real estate investment trust (REIT) Tanger hasn't felt the sting. In fact, it is expecting occupancy to fall to as low as 94% this year, down from 99% as recently as 2013. Malls with too many empty storefronts quickly become less attractive places for customers and lessees. So this is a big issue to watch, even though 94% occupancy isn't exactly disastrous. The other impact from this, however, is that Tanger has been granting rent concessions to some tenants to keep occupancy as high as possible, which impacts the top line. And even that hasn't been enough to offset the pain of store closures and bankruptcies.

With all of that said, Tanger is built to withstand this type of headwind. Total debt to adjusted assets at the end of 2018 was roughly 50% at the investment grade-rated company. It covered its interest expenses a robust five times over. And the dividend accounted for a modest 60% or so of funds from operations last year. In other words, the company has time to deal with the changes taking shape because it is financially strong.

Tanger, notably, isn't sitting still. Granting rent concessions is part of a playbook that management has used before during hard times. Yes, it hurts in the near term, but it maintains the desirability of the REIT's assets for the long term. The company is also working to add new retail concepts to its outlet centers to replace those that have fallen out of favor, again part of a well worn playbook. It's going to take time to enact this shift, but Tanger has adjusted before and is highly likely to do so again this time around.

Meanwhile, the real pain in the retail space is hitting lower-quality enclosed malls -- Tanger's outlet centers are inherently different. There are no anchor tenants, the facilities are relatively low cost because they are outdoors, and updating shopping space is relatively easy. In addition, Tanger recently sold four lesser assets, with plans to use the proceeds to further strengthen its balance sheet. Some of its 2019 projections, like occupancy, are also likely to change for the better because of this move when the company reports first-quarter earnings.

There's more risk here than at General Mills, which is why the stock is down 50% from 2016 highs. But for more aggressive investors, the 6.7%-yielding REIT is worth a deep dive today.

Transitions hurt, but can still be good

Investors don't like uncertainty. That's understandable, but for those willing to look long term, a little uncertainty can open up a lot of opportunity. In the case of General Mills, shifting consumer tastes and a debt-funded acquisition have investors worried. But the food giant has a long history of working through tough times, this time isn't likely to be much different. Tanger is facing a bigger threat, since internet shopping is basically a new phenomena. However, with a solid balance sheet, a focus on outlet centers, and a management team actively working on the issue, more aggressive investors are likely to find themselves well rewarded for taking the time to get to know this REIT.

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Reuben Gregg Brewer owns shares of General Mills and Tanger Factory Outlet Centers. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.