Monday, December 17, 2012

REITs, Income Trusts and DRIPs

REITs (Real Estate Income Trusts), old income trusts and DRIPs (Dividend Reinvestment Program have an interesting relationship. When I was reviewing Crescent Point Energy Corp (TSX-CPG) an old income trust, some analysts were adjusting the Dividend Payout Ratios (DPRs) because of their DRIP plan.

The theory is that the DPRs should be reduced by the dividends or distributions flowing back to the company to purchase more shares or units. The company is not paying out all the dividends or distributions in cash because of the DRIP plan.

Just the other day, I was reading how RioCan REIT (TSX-REI.UN) DPR should be considered better than what is usually shown because of the number of shares that are part of their DRIP plan.

However, the issuance of new shares does raise the total amount that the company will have to payout in distributions in the future. It also rises what they will need in revenue and cash flow per share for the future. So what is now looked upon as a good thing could potentially cause problems in the future.

So, you may think that things are fine now, but the company could get into real serious problems if they cannot grow their revenues and cash flow.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

1 comment:

  1. I love real estate investment trusts. Brick and mortar reits give the investor a increasing dividend along with the increasing value of the brick and motar buildings that the trust owns. Rents usually increase over time so to should the dividend.