Today, Investment U’s Income Expert, Marc Lichtenfeld, takes a look at Simon Property Group’s dividend safety.
When mall owner Simon Property Group (NYSE: SPG) reports third quarter results in a few weeks, it will be perhaps the most important earnings report in its history. Brick-and-mortar retail has gotten crushed in 2020.
While malls were already facing stiff competition from online competitors, the pandemic temporarily shut retailers’ doors during the spring and many are still experiencing drastically reduced traffic.
So shareholders will be watching Simon’s earnings report closely to see whether its generous 7.7% dividend yield is sustainable.
Now, keep in mind, the company already cut its quarterly dividend in 2020 from $2.10 per share to $1.30. The reduction tarnished a solid annual dividend-raising track record going back to 2010.
But that all feels like ancient history. Can Simon Property Group maintain the $1.30 per share payout each quarter?
Simon Property Group Dividend Safety Overview
Not surprisingly, funds from operations (FFO) – a measure of cash flow used by real estate investment trusts (REITs) like Simon Property Group – is expected to be down sharply this year, hitting its lowest level since 2012.
Just prior to the pandemic, Simon Property Group’s FFO dipped. SafetyNet Pro is not a fan of declining cash flow for any reason, so Simon Property Group’s rating will be hit hard by the lower numbers in 2019 and 2020.
The good news is that because the company slashed its dividend earlier this year, it is forecast to pay only $1.9 billion in dividends. So even if FFO comes in lower than the expected $2.98 billion, the company should be able to afford the dividend for the rest of the year.
But what happens next year?
With Simon Property Group’s declining FFO and a recent dividend cut, the quantitative model that runs SafetyNet Pro suggests another reduction in dividends in the next 12 months.
Considering the state of brick-and-mortar retail, particularly in our big malls, I’d have to agree.
We’ll see whether the company reports anything to convince us otherwise when it releases its third quarter results on November 2.
Dividend Safety Rating: F
Simon Property Group’s dividend safety isn’t going to improve anytime soon. In fact, its declining cash flow is a major reason behind SafetyNet’s rating. As of right now, this dividend is likely to be cut.
However, you can discover the safest dividends on the market by signing up for the Wealthy Retirement e-letter below. The team at Wealthy Retirement provides the latest dividend updates and retirement strategies to guide you towards financial freedom.
About Marc Lichtenfeld
Marc Lichtenfeld is the Chief Income Strategist of Investment U’s publisher, The Oxford Club. He has more than three decades of experience in the market and a dedicated following of more than 500,000 investors.
After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report, among other outlets. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
Marc shares his financial advice via The Oxford Club’s free daily e-letter called Wealthy Retirement and a monthly, income-focused newsletter called The Oxford Income Letter. He also runs four subscription-based trading services: Technical Pattern Profits, Penny Options Trader, Oxford Bond Advantage and Predictive Profits.
His first book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012, and the second edition was named the 2018 Book of the Year by the Institute for Financial Literacy. It has been published in four languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list. It was named the 2019 Book of the Year by the Institute for Financial Literacy.
