Three months ago, Simon Property Group (NYSE:SPG) reported solid first-quarter results, demonstrating that the COVID-19 pandemic hadn't crushed high-quality malls.

This week, the U.S. mall giant reported even better results for the second quarter. The accelerating recovery makes Simon Property Group a promising turnaround investment -- not to mention a great dividend stock.

A big earnings rebound

Simon Property Group's portfolio net operating income (NOI) surged 32.5% year over year in the second quarter. Excluding income from the 80% stake in Taubman Realty Group that Simon acquired last December, Simon's NOI increased 16.6% year over year.

Of course, Simon faced an easy year-over-year comparison, as pandemic-related lockdowns severely impacted the mall industry in the second quarter of 2020. Portfolio NOI had fallen 21% in that quarter. Nevertheless, it's encouraging that the REIT has already recovered more than half of the NOI decline it experienced a year ago.

Retailers and restaurants grouped around the entrance to The Florida Mall.

Image source: Simon Property Group.

The rebound in NOI drove a corresponding recovery in FFO: a key earnings metric for REITs. FFO per share surged 53% to $3.24. Excluding a one-time non-cash tax gain, Simon recorded FFO per share of $2.92, easily beating the analyst consensus of $2.38.

Simon Property Group's controversial investments to buy up struggling retailers contributed to its Q2 earnings surprise. Simon disclosed NOI of $196 million from its retailer investments, making up 13% of its total NOI for the quarter. Most of the retailers that the REIT owns easily surpassed their 2019 profitability last quarter, according to CEO David Simon.

Increased guidance still looks conservative

In conjunction with the earnings report, Simon Property Group boosted its full-year outlook for the second time this year. Simon now expects 2021 FFO per share to total $10.70 to $10.80, up from its May guidance of $9.70 and $9.80 and its initial 2021 forecast range of $9.50 to $9.75. The tax gain recorded last quarter accounted for $0.32 of the increase, with the outperformance of Simon's core mall business and its retailer investments driving the bulk of the guidance boost.

Excluding the tax gain, the new guidance range sits roughly halfway between Simon's 2019 FFO of $12.04 per share and its 2020 FFO of $9.11 per share. However, the company's forecast still seems overly conservative.

Indeed, Simon generated FFO of $5.72 per share in the first half of 2021, so its guidance implies FFO of $4.98 to $5.08 in the second half of the year. That would represent a significant slowdown compared to its Q2 results, even excluding the one-time gain.

It's true that the recent surge in profits from Simon's retailer investments may not be sustainable. That said, the REIT is rebuilding occupancy at its malls thanks to its strong year-to-date leasing activity. Additionally, the fourth quarter tends to be seasonally strong for retailers and mall REITs. These factors give Simon Property Group a good chance of generating more than $11 of FFO this year.

Three women holding shopping bags and walking through a mall.

Image source: Getty Images.

Another dividend increase

Last year, Simon Property Group reduced its quarterly dividend from $2.10 per share to $1.30 per share. However, REITs are required to distribute at least 90% of their taxable income to shareholders as dividends. With FFO and net income on the rise, Simon has started to ramp up its payouts once again.

In June, Simon announced that it would increase its quarterly dividend to $1.40 per share for Q2. In this week's earnings release, the REIT said it will raise its dividend by another $0.10 per share for the third quarter.

The new annualized payout of $6.00 per share gives Simon Property Group a solid 4.6% dividend yield. Moreover, investors can probably expect further dividend increases as Simon's malls continue to recover from the pandemic and the REIT starts to capitalize on its recent investments in property redevelopments and new outlet malls.

The COVID-19 pandemic hasn't ended yet, so Simon Property Group could experience further near-term volatility in its financial results. That said, the sharp rebound in traffic to high-quality malls in recent months proves that Simon's business will recover once the pandemic does end. That makes Simon Property Group an attractive turnaround stock.

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.