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Simon Property Group (SPG) is a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations and an S&P 100 company (Simon Property Group, NYSE:SPG). Our properties across North America, Europe and Asia provide community gathering places for millions of people every day and generate billions in annual sales.

To begin with, there has been a constant drum beat about the death of retail and the death of malls. Simon is the big fish in this pond as the largest operator of class A malls around the country. The stock has been in a downward trend since peaking in July of 2016.

Fast Graph Analysis

Fast Graph of SPG

The Fast Graph pictured above shows a few important elements to call out. Firstly as I noted, the stock price has declined for nearly the past 3 years. At the same time, the FFO (funds from operation) have continued to grow each year. This multiplying effect of increased earnings with a declining stock price has made the P/FFO multiple decline rapidly. At the peak in 2016 shares traded at about 22x FFO. Compare that with a value of 13x today and you can see the P/FFO contraction in full force.

This creates a great opportunity for a long term investor to create a margin of safety by buying great companies when they are temporarily hated. Based on historical values, the “normal” P/FFO ratio for SPG is about 16.8. That is about a 30% increase from where we sit today if FFO were to not grow.

That is one positive effect waiting in our corner though that can take time to play out. The second is the continued FFO growth per year. Best estimates still peg growth in the low single digits for the next few years. In the meantime however we can collect a fantastic 5% dividend yield from this company.

YCharts Dividend Yield for SPG

Looking at the historical dividend yield for SPG from YCharts, the yield has not been this high since the great recession. There was another brief blip in the beginning of 2018 when the yield also touched 5%.

Another bright spot to point out is the credit quality of SPG. They are A rated from S&P which is both fantastic in absolute terms but incredible when you consider that REITs must pay out most of their earnings to shareholders. REITs tend to rely on a lot of leverage and constant share issuance to continue growing which negatively impacts their credit quality. Simon is battle-tested and prepared going forward.

Simply Safe Dividends

Simply Safe Dividends

From Simply Safe Dividends, the scorecard for SPG rates quite well. Recall that these figures are percentile based based on the whole universe of dividend paying stocks. Based on the combination of many factors, SPG scores safer than 74% of dividend stocks. This is crucial importance for us to not have to worry whether they can pay their dividend obligations. The growth will be a tad slower as it needs to move in conjunction with FFO growth. Finally the yield at 5% is obviously higher than most dividend stocks.

My Purchase

For me – I added more shares to this holding at the end of May. This was a new position for me all together only in April. In April I had about 3/4 of a position with my initial buy and with this add I’ve now filled it out. At this point shares may need to touch about a 5.5% yield for me to consider going overweight.

SPG Alerts from Custom Stock Alerts

From Custom Stock Alerts that’s what I’ve done. I revised my alert based on dividend yield to let me know if crosses above a 5.5% yield.

For me personally, SPG also offers a different option from an ETF. I try to look to ETFs first when adding to gain the instance diversity they provide. What I think SPG offers is both a higher yield than many REIT ETFs as well as some great upside when the pricing eventually returns to historical norms.

Conclusion

Simon Property Group continues to be in a downtrend though underlying business results don’t reflect the pricing reality. This has created a nice opportunity to either start or add to a position in the company. Enjoy a safe 5% dividend yield until the narrative changes.

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