Simon Property Group, Inc. (NYSE:SPG) is about to trade 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, on the back of last year when the company paid a total of US$8.40 to shareholders. Last year's total dividend payments show that Simon Property Group has a trailing yield of 5.4% on the current share price of $154.95. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
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 more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. 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. A useful secondary check can be to evaluate whether Simon Property Group generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (85%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Simon Property Group's earnings per share have risen 15% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Simon Property Group has lifted its dividend by approximately 8.8% a year on average. 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.
To Sum It Up
Has Simon Property Group got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Simon Property Group's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 57% and 85% respectively. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Wondering what the future holds for Simon Property Group? See what the nine analysts we track 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.
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