Simon Says... [Dividend Safety Loading]

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Simon Says This Dividend Could Be in Trouble

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Reports of shopping malls' deaths have been greatly exaggerated. That said, it's not an easy business these days.

While some malls are struggling, Simon Property Group's (NYSE: SPG) more than 400 malls in 24 countries are doing okay. Simon specializes in high-end properties that tend to be more resistant to downswings in retail.

Simon's properties include...

  • Chicago Premium Outlets in Aurora, Illinois
  • Lenox Square in Atlanta
  • 10 malls in Japan.

The company pays a $1.80 quarterly dividend, which gives it a strong yield of 5.9%. But can dividend shoppers rely on Simon paying at least that much each year?

Simon Property Group is a real estate investment trust, so we look at funds from operations (FFO) as the measure of cash flow to determine the safety of the dividend.

FFO in 2022 is estimated to be $3.8 billion. That's lower than the previous year's $4.5 billion and pre-pandemic 2019's total of $4.3 billion.

That's not what we want to see. Safety Net frowns upon declining cash flow.

The good news is 2023's figure is forecast to be $4 billion.

The company will report fourth quarter results on February 6, so we'll get 2022's final FFO numbers and perhaps guidance for 2023.

Chart: Simon Property Group's Erratic FFO

The FFO numbers are a little all over the place rather than the steady growth we'd prefer to see. But, most importantly, current FFO does still cover the dividend.


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In 2022 and 2023, the payout ratio based on FFO is expected to be right around 60%. That's a comfortable number in that even if FFO were to decline again, the dividend would still be affordable.

Simon Property Group has a pretty solid dividend history... except when the spit hits the fan. It slashed its quarterly dividend in 2020 from $2.10 to $1.30. Though the company has increased it since then, the dividend is still below where it was prior to 2020.

It did the same during the global financial crisis when in 2009 it went from paying $0.90 per share in cash to $0.09 per share in cash and $0.81 per share in stock. Then the next quarter, the company paid $0.12 per share in cash and $0.48 per share in stock.

While Simon Property Group can afford the dividend now, we know that in times of crisis, we can't rely on the dividend. And if FFO does not improve the way Wall Street expects it to in 2023, we'll have to take a very close look at the dividend to see if a cut is on the way.

The dividend is likely safe for the next few quarters, but the long-term prognosis is questionable.

Dividend Safety Rating: D

Dividend Grade Guide

If you have a stock whose dividend you'd like me to analyze, leave the ticker in the comments section.

And be sure to check to see whether I've written about your favorite stock recently. Just click on "Search" at the top right part of the page and type in the name of the company.

Good investing,


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