2 High Dividend Income Stocks At Reasonable Prices – PTR & SPG

Thesis

For those looking for solid, secure dividend income, Simon Property Group (SPG) and PetroChina (PTR) are two good companies to look at. Simon Property Group is the largest REIT in the U.S. with over 200 properties. PetroChina is a subsidiary of China National Petroleum Corporation (CNPC) which is the second largest oil and gas company in China. While PetroChina is a subsidiary of CNPC, the majority of CNPC’s core business operations are maintained by PetroChina. Both Simon Property Group and PetroChina have impressive dividend yields with cash flow sufficient to cover and produce additional dividend growth. Let’s take a look.

(Note: All financial information is sourced from ycharts.com under the companies’ respective tickers.)

Simon Property Group

Many investors and analysts have become wary of brick-and-mortar business models and REITs. With the likes of Amazon (AMZN) and other online retailers absorbing copious amounts of the traditional retail market, these fears are reasonable. Brick-and-mortar businesses will never be what they once were, but I think it’s unwise to assume that the business model is down for the count. Consumers still like to try on clothing at the mall, gather for holiday shopping, and pick out their own produce. Commercial real estate is still a necessity for many businesses, and REITs like Simon Property Group will continue to adapt its business to remain successful.

Simon Property Group has been quite successful amid the ecommerce boom and the Covid-19 pandemic. In FY20 Simon Property Group posted ending occupancy rates of 91.3% for U.S. malls and outlets and 95.3% for The Mills (REIT subsidiary). This is impressive considering the nationwide lockdowns, massive job losses, and ecommerce sales spikes due to the pandemic. In FY21 the ending occupancy rates came in at 93.4% and 97.6% respectively. Simon Property Group has and will continue to face challenges, but the company has managed to persevere as a successful business through it all thus far. Additionally, Simon Property Group’s effective interest rate on its $25 billion mortgage debt is 2.86%. Rental income will continue to rise-especially if the real estate market stays on its current trajectory-and it’s good to see over 80% of the company’s debt financed at exceptionally low rates.

Simon Property Group is set to pay out $6.60 per share in annual dividends, coming to a yield of 4.9% at current prices. The company’s TTM free cash flow per share sits at $9.46, providing plenty of dividend sustainability as well as room for dividend hikes moving forward. Simon property group is currently trading at a P/FCF of 14.59, a P/E of 19.68, and is still down roughly 14% from pre-pandemic levels. In short, Simon Property Group appears to be a solid dividend play at current levels, with room for additional market and dividend growth.

PetroChina

PetroChina is one of China’s largest oil and gas producers with exceptional financial figures. With supply disruptions in the oil market the company has strong prospects as oil prices are on the rise. PetroChina’s revenue and net income experienced some hindrance because of the Covid-19 pandemic, however, the company’s performance has been up to par. While it feels as though the pandemic has lasted a lifetime, I still view the headwinds faced because of it to be temporary. Nonetheless, as oil prices rise, we can expect better margins and bottom-line results from PetroChina. Additionally, lingering sanctions on Russia could position PetroChina to capitalize on the increased oil demand of Western-European countries.

PetroChina is set to pay out $3.36 per share in annual dividends, coming to a yield of 6.35% at current prices. The company’s TTM free cash flow per share sits at $9.99, providing the dividend with a large safety net and plenty of room for growth. PetroChina is currently trading at P/FCF of 5.32, a P/E of 7.56, and is down over 50% from levels in FY15. The company isn’t down from pre-pandemic levels, however, when looking at price compared to performance, PetroChina appears highly undervalued. For example, in 3Q14 the company was trading near $150 per share and produced TTM free cash flow per share of $3.79. At current prices the stock is down 65% from levels seen in FY14, yet the free cash flow per share has increased by 163%. PetroChina appears to be undervalued with plenty of upside potential in its dividend and market price.

Conclusion

In conclusion, both Simon Property group and PetroChina have produced solid operational results amid various setbacks. Both companies have produced cash flow figures sufficient to cover their high yield dividends with additional room for growth. Moreover, both stocks are down double-digits from all-time highs with valuation metrics that support the fact both stocks are trading a favorable entry prices. For investors looking for dividend additions to their portfolio, Simon Property Group and PetroChina both appear to be solid options.