Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



1 Dividend Payer Rewarding Shareholders While Refocusing Its Business

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Simon Property Group (NYSE: SPG  ) recently announced plans to spin off its strip malls and smaller enclosed malls into a new company. That will allow the mall giant to focus on its higher-end enclosed malls and outlets. The move will be a good one for shareholders on multiple fronts, but such transactions don't always play out this well.

Getting "simple"
Simon is a prime example of an industry leader that took advantage of an economic soft patch to grow. During the 2007 to 2009 recession, the real estate investment trust (REIT) was actively adding to its portfolio, buying competitors like Mills Corporation (2007) and Prime Outlets (2009).

This growth, however, came at a cost. Simon cut its dividend at the tail end of the recession, right when income investors needed it most. Although the dividend is now above its pre-recession level, that investor-unfriendly move left a bad taste in the mouths of people trying to live off of their dividends.

That makes the spin-off of the company's "less desirable" properties that much nicer, since it will be accompanied by an effective dividend increase. Simon's dividend will stay the same, and the spin-off will pay a dividend of its own. A welcome reward if you stuck with the REIT through the tough years.

Losing its way
Of course, industry leaders don't always make the right calls. For example, while Simon was cutting its dividend to foster growth, General Electric (NYSE: GE  ) was cutting its dividend to ensure its solvency. GE's leadership let the company's financial arm become disproportionally large compared to its industrial business. When the financial crisis hit, it had little choice but to take a government handout and disappoint investors who had relied on the one-time dividend champion for income.

Today, the company is back on its feet, increasing its dividend again, and planning to spin off its credit card business to reduce the contribution of its finance arm to just 30% of earnings. Earnings, however, are expected to be lower in 2014, and perhaps in 2015, without the contribution from what is estimated to be a $16 billion unit. Although GE is back on track, you'll need to keep a keen eye on the progress of this corporate action.

Change doesn't always work out so well
The thing is, income investors don't always make out so well when big changes are taking place. For example, UDR (NYSE: UDR  ) once bought fixer-uppers and upgraded them as a means to increase rents. That model worked well for the company for many years.

After a CEO change, however, the REIT set its sights on high barrier to entry markets. To help the transition to a new model, UDR sold off a large portion of its legacy portfolio. That sale was accompanied by a dividend cut. While UDR is a one of the largest apartment REITs and a well run company, income investors didn't make out so well on that change.

Leggett & Platt (NYSE: LEG  ) , best known for making bed springs, is another company making a strategic shift. Over the last few years, the company has been selling off smaller and less desirable operations to focus on growth businesses. That's led to what should be a temporary slowdown on the top and bottom lines and a relatively depressed stock price.

Throughout the shift, the around 4% yielder has maintained its decades long trend of dividend hikes, just at a slower pace. The question now is when will Leggett's business shift get the top and bottom lines moving again? That's what will be needed for dividend growth to shift back into high gear -- otherwise there could be a UDR style cut in the cards.

Change isn't easy
Simon's spin off is a shareholder-friendly move and one that should help remove the sting of its previous dividend cut. However, the company's mixed past shows that income investors need to keep a close eye on dividend payers undergoing big changes, like Leggett & Platt and GE today. Sometimes the result isn't as positive, a fact that REITs UDR and Simon (during the recession) have both proven.

More dividends to boost your portfolio
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2769027, ~/Articles/ArticleHandler.aspx, 9/5/2015 8:16:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:00 PM
GE $24.00 Down -0.51 -2.08%
General Electric C… CAPS Rating: ****
LEG $42.95 Down -0.91 -2.07%
Leggett & Platt, I… CAPS Rating: ****
SPG $174.92 Down -3.00 -1.69%
Simon Property Gro… CAPS Rating: **
UDR $31.16 Down -0.62 -1.95%
UDR, Inc. CAPS Rating: ***