Is Tanger Factory Outlet Centers, Inc. a Buy?

These aren't exactly the golden days of brick-and-mortar retailing, but this doesn't mean that investors can't cash in on the trend while still betting on the side of the landlords. Deal-seeking shoppers and retailers looking to clear out excess merchandise are flocking to factory outlets, and that's where Tanger Factory Outlet Centers (NYSE: SKT) is making its mark.

More than 189 million people will hit up Tanger's 44 outlet shopping centers this year. Tanger's upscale approach to outlet shopping has also attracted more than 510 brands to set up shop at over 3,100 stores across 15.3 million square feet of space. Business may not always be booming, but Tanger's doing right by its shareholders. The REIT has come through with 25 consecutive years of payout hikes, and the current yield of 5.7% isn't too shabby. Let's take a closer look at Tanger to see if it's a right fit for your portfolio.

Tanger's seeing limited growth

Focusing on the markdown havens that factory outlets have become is helping Tanger hold up better than traditional mall operators, but there are still challenges here. Revenue barely inched higher in Tanger's latest quarter, up a mere 0.1% to hit $119.7 million. Tanger has tacked on one more center over the past year, but retailers buckled. Occupancy has declined to 95.6% from 96.1% a year earlier.

Net income declined sharply, but that 22% slide was the handiwork of an asset sale gain recorded a year earlier. On an adjusted basis, we see Tanger's bottom line is about as flat as its top line. Funds from operations -- the figure that income investors watch closely with every high-yielding REIT -- declined 0.5%, but as a result of brisk share buyback activity, this translated into a 1.7% improvement in funds from operation on a per-share basis.

It's not just the financials that seem to be marching in place. Tanger stock has been moving higher since bottoming out in March, but it's essentially where it was a year earlier. The dividends along the way in the form of quarterly distributions of $0.35 a share have literally made all of the difference.

The chunky dividend is safe for now. Tanger's payout ratio of 64% of funds available for distribution gives it enough wiggle room to keep inching its disbursements higher despite the lack of material top- or bottom-line growth. The streak of annual hikes won't end at 25 years.

The long-term outlook remains hazy for Tanger and its peers. Online retail is the future, and merely meandering now when the economy's coasting along won't be pretty when the inevitable economic slowdown returns. Tanger's focus on factory outlets helps provide some recessionary relief, but it's still hard to compete with e-tail.

Market sentiment for retail-based REITs is something to watch in the near term. Interest rates are moving higher for fixed-income investments, and if that continues, it will be harder for REITs to stand out on yield alone, especially since they don't have the same kind of flexibility to push their rates higher to compete. Tanger has established itself as one of the better factory outlet REITs, but it's hard to give it a ringing endorsement when the industry itself remains on shaky ground.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.