A dividend is only as good as the company that's paying it. Sometimes payouts aren't as stable as they seem. With COVID-19 and massive unemployment, business conditions are changing rapidly around the world. Dividends that have been paid for decades may need to be reduced. 

The three stocks that I think will have to reevaluate their dividends soon are ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and Simon Property Group (NYSE:SPG)

Chalk chart on blackboard showing a line of exponential growth until the line turns sharply lower.

Image source: Getty Images.

Big oil dividends won't last forever

At first glance, it may seem that dividends from big oil companies are about as safe as it gets in investing. Oil companies have been profitable for decades, they are a huge part of the economy, and there's no way they're not making gobs of money...right? 

Big oil companies are still highly profitable, but not nearly as much as they once were. ExxonMobil's and Chevron's net incomes have dropped sharply over the last two years and will likely plummet in 2020. COVID-19 hit the companies hard in the short term. Relatively stagnant oil demand and prices, as well as increasing extraction costs, have driven weaker results over the long term.  

XOM Dividends Paid (TTM) Chart

XOM Dividends Paid (TTM) data by YCharts

At the same time, both companies have been maintaining or growing their dividends. The current dividend yield is 6.5% for ExxonMobil and 5.9% for Chevron. But both companies are paying out more than they earn. If they don't reduce dividends in 2020, their payout ratios will probably worsen by the end of the year. 

To fill the gap, companies have to sell assets or borrow money to maintain dividends and the capital expenditures necessary to keep business going. You can see above that ExxonMobil has increased debt sharply over the past decade despite falling net income and rising dividend payments. Chevron has been selling assets to avoid increasing debt. That's not sustainable, and 2020 may be the year the trend ends. 

Simon Property Group

REITs need to pay out at least 90% of their income as dividends to investors. That means that when earnings fall, the dividend can go with it. In the case of a mall owner like Simon Property Group, which saw earnings fall 20% to $437.6 million in the quarter that ended March 31, 2020, the dividend yield of 9.2% likely won't last.

Management said it would declare a dividend by the end of June, but didn't say it would maintain anything near the quarterly dividend of $2.10 per share paid in February. The fundamental problem is that tenants at Simon Property's malls are under financial duress because of COVID-19 shutdowns and mall interruptions. Some big retailers are going bankrupt. Thousands of store owners have gone months without revenue and will need adjustments to their leases to stay in business. These issues will reduce Simon Property's cash flow and earnings. 

Malls are starting to open up again around the country, but it could be a year or more before business gets back to normal levels. In the meantime, I wouldn't be surprised to see more stores shut down and spaces sit empty. This is a dividend that may take a long time to get back to what it once was. 

No dividend is 100% safe

We've learned in 2020 that even the most reliable dividends aren't 100% safe. For these companies, operations have been disrupted so much that they likely won't be able to maintain dividends where they were just a few months ago. Investors should keep this in mind when considering buying these dividend stocks

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.