While the trading day on Wednesday, May 17th was rough across most of the Equity markets it was not strange for Tanger Factory Outlets ( SKT) investors. Out of the recent twelve trading days the stock ended up positive only once. The stock price went down from the levels of $32 before the recent earning release to the levels of sub $26 in a short while.
I faced a similar meltdown situation with HCP Inc. (NYSE: HCP) just about a year ago. It was just after the Q4’15 earning release that the stock started to fall from the levels of $35 to $28 and even lower than that. It was this experience that led me to the conclusion that as a long term investor decisions should not be taken too swiftly.
When I examine the forecast that Tanger’s management delivered for the year it is very clear why investors are worried. The next table captures the low and high range management has given for 2017, taken from the published 8-K, alongside the previous years’ performance.
From the above table it is clear to see that 2017 is expected to be a tough year in term of net income. Based on the given range of $1.04 to $1.09 net income per share the absolute Net Income is expected to go down by ~40% year over year.
On the other end, the forecast FFO per share is expected to grow by couple of cents compared to 2016. It means that the dividend growth that was declared back in April is still pretty much supported when looking at the Dividend to FFO ratio. It is still well below 60% at any point in the given range.
For me as a Dividend growth investor is a good sign to maintain my position.
Another worrying signal was the fact that there seemed to be many insiders sold their stock holdings towards the recent drop. The next chart is taken from Nasdaq.com.
In order to evaluate whether this notion of executives running away from their company’s stock I examined in details SKT’s insiders’ activities in the recent 2 years.
The next table is based on the data from Nasdaq.com and shows the monthly traded amount of shares by insiders from mid-2015. I tried to see whether there is something unusual happening this year compared to recent years.
Looking at the amounts that were sold last year during the time period of Feb-Apr’16 and comparing it to the recent quarter it seems that the amount of “Automatic sells” is very similar in these two time periods (30,000-35,000).
When comparing the “Sell” amounts it seems that the amount in the first half of 2017 is almost half of the amount sold back in May 2016.
When examining the specific list of executives and their sold quantities, out of the total 55,900 shares that were sold in 2017, 32,900 were sold by a single person (mostly in May) and the remaining 23,000 shares were sold by four other insiders.
In May 2016, out of the total ~98,400 shares 85,000 were sold by the CEO, Mr. Tanger, and the remaining ~13,400 were sold by five other insiders.
Two conclusions can be derived from these findings:
Insiders sold more in 2016 than in 2017. The CEO, who sold back in 2016 (and also in May 2015) did not sell yet shares during 2017.
The above analysis gives me confidence that the executive don’t see a catastrophic results down the line.
The forecast for the full year which was slightly adjusted downwards in the last Earning Release still indicates that the company is seeing growth in FFO this year and I therefore I decided to added to my existing position at $24.9.
This price, which represents 5.5% dividend yield, seems to hold sufficient margin of safety based on historical behavior.
The concerns that the stock is under an attack of short traders do not concern me as I am in for the income and I am in for the long run.
I will continue to monitor and report here the performance of my dividend portfolio.
Disclosure: I am/we are long SKT, HCP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.