Long-term interest rates chugged higher throughout the first half of 2022, and real estate investment trusts felt the pinch. REITs are prized for their consistent and usually generous dividend yields, and when bond yields rise, it strips away some of the relative appeal of REITs. Since the end of June, however, rates have come down sharply, and REITs have rallied. That’s good news for one of the stocks we’ve been holding.
Tanger Factory Outlet Centers (SKT) is a real estate investment trust that owns and operates 30 outlet centers with more than 2,200 stores in the United States and Canada. We currently hold 200 shares of the stock from a number of earlier trades dating back to 2017. If you began with our first trade, you’re up 68%. If you did the last one in May, you’re up 7.7%.
If you own SKT, the recommendation today is to write September 16 covered calls at the $18 strike price. If you don’t own SKT, a buy write looks attractive with a potential 4% one-month total return even if the stock goes nowhere or even loses a few pennies in price.
Please email me ([email protected]) at any time with questions about how to use Forbes Premium Income Report. — J.D.
Tanger Factory Outlet Centers (SKT) – Buy Write
Buy 200 SKT
Sell to Open 2 September 16 $18 Calls
Execute for Net Debit of $17.30 or lower
Revenue this year for Greensboro, N.C.-based Tanger Factory Outlet Centers (SKT) is expected to dip 7.5% this year to $394.5 million, with funds from operations up 8.6% to $0.74 per share. Free cash flow per share of $2.03 comfortably covers $0.80 in annual dividends, which give SKT a yield of 4.4% at current prices.
Tanger’s next earnings report is due first week of November, and the next ex-dividend date will at the end of October.
Here is the buy write: Buy 200 SKT ($18.05 current price) and sell to open 2 contracts of $18 September 16 calls. As a combined buy write, use a net debit of $17.30 or lower.
The buy write as presented here has the potential to earn $0.70 per share on $17.30 per share at risk, or 4.05%. Over 31 days, the annualized return would be 47.6%. This outcomes happens if SKT closes above $18 at expiration on September 16. If SKT closes at or below $18, you would still own it at a $17.30 per share cost basis.
Options income for this trade: Earn $150 selling 2 SKT September 16 $18 call contracts. Click here for updated bid-ask and return characteristics.
John Dobosz is editor of Forbes Dividend Investor, which provides a weekly portfolio of high-yielding, value-priced income stocks, REITs and MLPs, and Forbes Premium Income Report, which sends out options-selling trade recommendations on two dividend-paying stocks every Tuesday and Thursday.
NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.
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