Last update on 2024-06-27

Simon Property Group (SPG) - Dividend Analysis (Final Score: 4/8)

In-depth dividend analysis of Simon Property Group (SPG). Using an 8-criteria scoring system, SPG scores 4 out of 8. Check out the comprehensive review.

Short Analysis - Dividend Score: 4

We're running Simon Property Group (SPG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

We analyzed the Simon Property Group (SPG) based on 8 criteria to assess the performance and stability of its dividend policy. Here are the findings: 1. SPG's current dividend yield is higher than the industry average, which is good for shareholders. 2. The average annual dividend growth rate is over 7%, exceeding the 5% benchmark, showing growth, although there were some negative years. 3. The average payout ratio is alarmingly high at around 127%, way over the 65% threshold, indicating potential sustainability issues. 4. Dividends are mostly covered by earnings, though there were issues during economic downturns. 5. Dividends were not consistently covered by cash flow, particularly worrisome from a sustainability perspective. 6. Dividends have been stable overall, except for minor decreases during financial crises. 7. SPG has paid dividends consistently for over 25 years, a good indicator of reliability. 8. Share buybacks have been inconsistent, happening in only six out of the last twenty years, which might not appeal to those looking for regular stock repurchases. Overall, SPG shows strengths in dividend yield, growth, and consistency in payments, but has weaknesses in payout ratio and cash flow coverage.

Insights for Value Investors Seeking Stable Income

While Simon Property Group (SPG) has shown a high dividend yield and consistent payments over many years, the very high payout ratio and inconsistent cash flow coverage are concerning. These issues suggest that future dividends might not be sustainable without the company needing to borrow or cut back on payments. Moreover, the lack of regular share repurchases could be a downside for some investors. Therefore, it might be worthwhile to look into SPG further if you prioritize high yields and long-term consistency, but exercise caution due to potential sustainability risks and the inconsistency in share buybacks.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Explain the criterion for Simon Property Group (SPG) and why it is important to consider

The current dividend yield of 5.2229% for Simon Property Group (SPG) is higher than the industry average of 4.15%. Over the last 20 years, SPG's dividend yield has fluctuated significantly, reaching its peak during the financial crisis of 2008 at 7.3004% and its lowest point in the pre-crisis period at 2.7568% in 2012. The industry's yield also peaked in 2008 at 9.19% but has generally remained lower than SPG's yield in subsequent years. High dividend yields can indicate strong profitability and a shareholder-friendly management, but they can also signal potential risks if unsustainable. This trend is particularly good as it reflects SPG's reliable and often superior returns compared to the average industry performance.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate assesses how much the dividend payment per share has increased over time. An annual growth rate above 5% is often seen as healthy and indicative of a growing company.

In the context of Simon Property Group (SPG), it appears that the average annual Dividend Growth Rate over the last 20 years is 7.05%, which exceeds the 5% benchmark. This is a good trend, suggesting that SPG has been able to grow its dividends by more than 7% on average each year. However, there are some years (such as 2009, 2018, and 2020) where the growth rate is negative, indicating a decrease in dividends which could be due to economic downturns or company-specific issues. Despite these downturns, the overall trend remains strong and positive.

Average annual Payout Ratio lower than 65% in the last 20 years?

Assessing the average payout ratio over an extended period helps determine the sustainability of dividend payments. A ratio below 65% typically indicates that a company is distributing an appropriate portion of its earnings as dividends while retaining enough for growth and other expenses. This is a key metric for evaluating a company's long-term financial health.

The average payout ratio for Simon Property Group over the last 20 years stands at 126.831%. This figure is significantly higher than the 65% threshold which is generally considered satisfactory for dividend sustainability. This extraordinarily high payout ratio indicates that SPG has been paying out more than its earnings as dividends. Such a high payout ratio suggests potential issues with the sustainability of such large dividend payouts long-term. It could necessitate borrowing, reduction in future dividends, or reliance on other financial mechanisms to sustain payouts, which might not be favorable for long-term investors looking for stable and consistent dividends.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

The Earnings per Share (EPS) and Dividend per Share (DPS) trends for Simon Property Group (SPG) provide critical insights into the company's dividend sustainability. EPS has shown a consistent upward trend from 2003 to 2019, peaking at $7.88 in 2018 before a dip in 2020—likely due to the pandemic's impact. Equally, DPS has increased steadily, highlighting shareholder value. During 2003-2023, dividends covered by earnings were well managed except during recessionary pressures (e.g., 2009-2010) and 2020 (pandemic year). Maintaining coverage mostly above 1 suggests SPG’s dividends are generally sustainable, a positive sign for income-focused investors.

Dividends Well Covered by Cash Flow?

One crucial metric for assessing dividend sustainability is whether the dividends are covered by cash flow. The dividend coverage ratio, calculated as Free Cash Flow divided by Dividend Payout Amount, helps investors gauge if a company generates enough cash to cover its dividend payments.

For Simon Property Group (SPG), the trend in the dividend coverage ratio from 2003 to 2023 shows a mixed picture. Generally, a ratio above 1 indicates that the dividends are well-covered by the cash flow, while a ratio below 1 signals potential risk. In this period, SPG exhibited several years (e.g., 2003, 2004, 2008, etc.) where the ratio was above 1, particularly notable in 2008 (1.47). However, numerous other years show ratios significantly below 1, such as 2009 (0.16) and 2005 (0.44). More recent years like 2022 and 2023 have ratios of 0.72 and 0.78 respectively, indicating that dividends are not sufficiently covered by free cash flow. This inconsistency might be risky for dividend investors as it reveals periods where the company might face difficulties maintaining its dividend payouts without tapping into additional resources or debt. Ideally, investors would prefer to see a consistently high dividend coverage ratio to ensure sustained and secure dividends.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability is a crucial indicator of a company's financial health and its commitment to returning value to shareholders, especially over extended periods like 20 years.

Simon Property Group (SPG) has shown a generally stable dividend performance over the past two decades. Despite some fluctuations, the annual dividend per share did not experience a drop exceeding 20%. Specifically, the dividends ranged from $2.4 in 2003 to reaching $7.45 in 2023. Notably, there was a slight reduction in dividends during the 2008 financial crisis when the dividend dropped from $3.6 to $2.7, which marks around a 25% decrease. However, the company bounced back quickly, reaching higher dividend levels. This trend is positive for income-seeking investors as it suggests resilience and a strong commitment to shareholder returns, thus reflecting financial stability. While there is a minor setback during the financial crisis and COVID-19 pandemic, the overall trend speaks to the robustness in their dividend policy.

Dividends Paid for Over 25 Years?

The criterion evaluates whether Simon Property Group (SPG) has paid dividends consistently for over 25 years to assess its stability and reliability as an income-generating investment.

Simon Property Group (SPG) has consistently paid dividends for the last 25 years. The provided data shows dividend payments beginning in 1998 and continuing uninterrupted through 2023, with adjustments during challenging periods, for instance, a decrease during the 2008 financial crisis and the 2020 pandemic. Despite these challenges, the upward trend in the long term is noteworthy. This long-term reliability is a positive indicator for income-focused investors, signaling the company's robust financial health and commitment to returning capital to shareholders. Hence, this trend is a good sign for the given criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to the company's ability to buy back its shares consistently over an extended period. This can indicate management's confidence in the company, support for the stock price, and added shareholder value.

Simon Property Group (SPG) shows six years of share repurchases over the past 20 years—2015, 2017, 2018, 2019, 2022, and 2023. This suggests inconsistency in share buybacks. Moreover, when considering the increase in the number of shares from 190,046,667 in 2003 to 326,807,326 in 2023, the average repurchases (2.8525%) appear minuscule in the broader context. Thus, this trend would be considered negative for investors seeking consistent stock buybacks as a sign of steady shareholder support and confidence.