3 Most Unbelievably Undervalued High-Yield Dividend Stocks

It's no secret that the brick-and-mortar retail industry has suffered lately. Bankruptcies and store closing announcements have been in the headlines frequently, and the market is clearly worried that e-commerce will wreak even more havoc on retailers in the months and years ahead.

Many parts of the retail industry are suffering, but not every company that operates in the retail industry is in danger. Here are three high-yield dividend stocks that have taken a beating lately but could handsomely reward investors who have the patient to ride out the tough times.

Data source: TD Ameritrade and author's own calculations. Share prices and dividend yields as of July 1, 2017.

Department-store weakness could be good for this company in the long run

It's no secret that department stores, as a group, aren't doing too well right now, and Macy's is no exception. In its most recent earnings report, the company reported that adjusted EPS fell from $0.40 to $0.24 and comparable sales dropped 4.6%, which sent the stock plunging after already-dismal performance over the past couple of years.

Retail fears have created some opportunities for long-term investors. Image Source: Getty Images.

However, I think the fears over the long-term outlook at Macy's might be a bit overblown. For starters, as my colleague Adam Levine-Weinberg pointed out, the company owns a significant amount of real estate assets, which the market may be overlooking. In addition, the company is in the process of implementing several initiatives that could help boost customer engagement and give it an advantage over other department stores. And just as Best Buy picked up market share as weaker competitors such as Radio Shack, Circuit City, and hhgregg went bankrupt, as one of the strongest department stores, Macy's could end up reaping a similar benefit.

In addition, Macy's is a highly profitable company, with a 2016 return on invested capital of 18.5%, and is still one of the strongest brands in the industry. In fact, according to the company's latest investor presentation, half of Americans shop at Macy's at least once a year.

Finally, from a dividend investor's perspective, consider that although Macy's 6.5% dividend yield may seem high, it still represents just 45% of the company's expected earnings for the year, so the payout should be safe, even if earnings come in weaker than expected while the company's turnaround plan is being executed.

Not all retail is struggling

The retail sector has been under pressure, and for good reason. I already mentioned that department stores have been struggling, and other retail subsectors, such as apparel, aren't having a good year. However, not all brick-and-mortar retail businesses are in bad shape.

In fact, as Kimco Realty stressed in its latest investor presentation, the perception of the retail industry and the reality are two different things. Specifically, many types of retail are internet-resistant and/or recession-resistant, and these are the primary types of retail Kimco invests in. In fact, the company says only 5% of its portfolio is vulnerable to e-commerce headwinds.

Fifty-five percent of Kimco's portfolio is made of internet-resistant businesses such as grocery stores, warehouse clubs, and off-price retailers, many of which are growing their store count, such as top Kimco tenants T.J. Maxx, Ross Stores, and Whole Foods Market.

Another 40% is made of "omni-channel" tenants, which, in a nutshell, refers to tenants that have a physical presence and a strong online business that's tied to the physical location. To name a Kimco-specific example, Home Depot is the company's second largest tenant, and over 40% of the company's online orders make use of the company's stores.

The bottom line is that while Kimco's business is doing just fine, the market seems to be pricing in too much retail weakness.

A leader in a growing segment of retail

Discount-oriented retail is both e-commerce resistant and recession-resistant, and Tanger Factory Outlet Centers is a beaten-down stock that should survive the retail headwinds without much of a problem.

Retailers with off-price merchandise, such as outlet stores, tend to offer bargains that simply can't be found online. They also work in any economy. As President and CEO Steven Tanger said in the company's latest presentation, "In good times people love a bargain, and in tough times people need a bargain."

Tanger owns 44 outlet centers with just over 15 million square feet of retail space. And the outlet industry is rather small, with less than 70 million square feet of "quality" outlet space, according to Tanger's estimates. This gives the company a market share of over 20%, and its brand name and strong access to capital give it an advantage when it comes to expanding into markets currently not served by outlet retail.

As far as the 5.3% dividend goes, keep in mind that it represents only 54% of Tanger's 2016 funds from operations, a remarkably low payout ratio for a REIT. That means there's plenty of cushion to absorb any temporary weakness, and for future dividend growth.