When considering the purchase of dividend stocks, total return is not just about the present price versus the price an investor paid for the shares. Total return includes appreciation plus the dividends received and the return may differ, depending on whether the investor collects or reinvests the dividends.
The dividends paid on a stock can vary over time. While a temporary cut or suspension of a dividend can hurt the share price, improving performance can make up for that over time.
Take a look at one real estate investment trust (REIT) that suspended its dividend in the second quarter of 2020 because of COVID but reinstated it in January 2021 and has been making steady progress in regrowing the dividend over the past 34 months.
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Tanger Factory Outlet Centers Inc. SKT is a Greensboro, North Carolina-based retail REIT that owns 37 indoor shopping centers and outdoor factory outlet malls with 14 million square feet and over 2,700 stores across 20 states and in Canada. Tanger Factory Outlet Centers was founded in 1981 and had its initial public offering (IPO) in May 1993.
If you invested $10,000 in Tanger Factory Outlet Centers five years ago, you would have purchased 462 shares at a price of $21.63. The quarterly dividend was $0.35 per share and the annual dividend of $1.40 per share had a yield of 6.47%.
Tanger raised the quarterly dividend from $0.35 per share to $0.355 per share for the first quarter of 2020. But on May 11, 2020, Tanger announced that because of the COVID pandemic and the uncertainty of its effects on retail businesses, it would temporarily suspend the dividend to save approximately $35 million per quarter. The first-quarter dividend was paid out on May 15, but that was the last dividend paid until January 2021, when it was reinstated at $0.178 per share or approximately half of what it had been before the suspension.
Shares of Tanger sunk as low as $3.40 per share during the March 2020 COVID crash. But the stock has been on an upward trajectory ever since with just a few normal pullbacks.
Beginning in October 2021, Tanger began raising its quarterly dividend every few quarters. One year ago, it was $0.22 per share. In April, the dividend was raised by 11.3% to $0.245 per share.
Not surprisingly, two weeks later, Tanger reported first-quarter funds from operations (FFO) and revenue that beat Wall Street estimates and raised its guidance for full-year FFO.
On Oct. 13, Tanger announced it is raising the quarterly dividend by 6% to $0.26 per share. The annual dividend of $1.04 now yields 4.4693%. The third-quarter dividend is payable on Nov. 15 to shareholders as of Oct. 31, and the ex-dividend date is Oct. 30.
If you invested $10,000 in Tanger Factory Outlet Centers five years ago, your shares would now be worth $12,936.39 for a total return of 29.35%. If, like some investors, you chose to reinvest rather than collect your dividends, you would now own 614.32 shares worth $14,303.99, for a total return of 43.03%.
So even with the dividend suspension and a share price drop to low single digits, Tanger Factory Outlet Centers has still managed to produce a profit for its investors over the past five years. Year to date its total return is 35.4%.
On Oct. 12, J.P. Morgan analyst Michael Mueller upgraded Tanger Factory Outlet Centers from Underweight to Neutral and raised the price target from $24 to $25. From its recent closing price of $23.27, that's a potential 7.4% increase.
Tanger Factory Outlet Centers will announce its third-quarter operating results after the closing bell on Nov. 6.
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