It looks like Simon Property Group, Inc. (NYSE:SPG) is about to go ex-dividend in the next 3 days. You will need to purchase shares before the 15th of August to receive the dividend, which will be paid on the 30th of August.
Simon Property Group’s next dividend payment will be US$2.10 per share. Last year, in total, the company distributed US$8.40 to shareholders. Based on the last year’s worth of payments, Simon Property Group stock has a trailing yield of around 5.4% on the current share price of $154.95. If you buy this business for its dividend, you should have an idea of whether Simon Property Group’s dividend is reliable and sustainable. So we need to investigate whether Simon Property Group can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Simon Property Group paid out 57% of its earnings to investors last year, a normal payout level for most businesses. That said, REITs are often required by law to distribute all of their earnings, and it’s not unusual to see a REIT with a payout ratio around 100%. We wouldn’t read too much into this. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 85% of its free cash flow as dividends, which is within usual limits but will limit the company’s ability to lift the dividend if there’s no growth.
It’s positive to see that Simon Property Group’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Simon Property Group’s earnings per share have been growing at 15% a year for the past five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we’d wonder why management are not reinvesting more in the business.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Simon Property Group has delivered an average of 8.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is Simon Property Group worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we’d also note that Simon Property Group is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it’s hard to get excited about Simon Property Group from a dividend perspective.
Curious what other investors think of Simon Property Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.