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.
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