Investors are torn about the Scentre Group (ASX: SCG) share price following its latest dividend update today.
The Scentre Group share price is struggling to hold at breakeven this morning after management slashed its final dividend.
However, the Australian Westfield shopping centre operator said that business is rebounding from the COVID-19 shock.
Scentre restarts dividend with smaller payout
The pandemic has hit retail property hard as social restrictions have driven shoppers online. Tenants, including Premier Investments Limited (ASX: PMV), are pushing landlords to cut rents in the fact of this new paradigm.
It doesn’t come as a big surprise that Scentre Group announced today that it will cut its final dividend to 7 cents a share. That represents a 38% cut to the second half dividend it paid this time last year.
But supporters will point out that the payout is great news. After all, Scentre Group paid nothing in the six months before as COVID rocked markets.
Silver lining to Scentre’s update
Further, rent collection improved in the second half of 2020. Receipts in the course of operations during the period came in at $1.3 billion compared to $1.06 billion in the first half of last year.
The group’s earnings were also bolstered by cost reduction. Management reported that operating, finance and other expenses dipped to $788 million in the latest half compared to $798 million in 1HFY20.
The improved cash receipts include the continued improvement in cash rental collections. The group collected around $1.18 billion of rent in the second half of 2020 – a 35% increase over the first half.
Questions on dividends and earnings linger
Despite these positives, concerns about future earnings will not ease following the update. While Scentre Group will have the upper hand in negotiating rents with smaller retailers, the larger ones aren’t likely to give ground.
The pandemic has taught them that having a shop in a premium centre isn’t necessarily as great as what it used to be.
Not only is online shopping expected to capture a significantly larger slice of shoppers, retailers that want to offer “click and collect” know they don’t need to be in mega malls to offer this convenience.
Foolish takeaway
Retailers are probably looking at opening shops in smaller neighbourhood centres where rents are lower.
I suspect this will favour the Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) share price, which is gaining ground today on a positive update.
Scentre Group will release its full year results on 24 February.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of Shopping Centres Australasia Property Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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