Friday, February 19, 2016

Dream Office REIT cuts dividend, suspends DRIP

The market seemed to like the dividend cut and cancellation of DRIP.

Dream Office REIT (D.UN) has cut its dividend by a third and suspended its DRIP program. Read the media release:

Effective with the February 2016 distribution, payable on March 15, 2016, we have revised our distribution from $2.24 per unit to $1.50 per unit, on an annualized basis, which will reflect a more conservative payout ratio of approximately 67% of 2016 analyst consensus AFFO. Concurrently, the Trust suspended the DRIP (currently at 38% participation ratio) to eliminate dilution and to preserve value.

All very reasonable and not unexpected. That said I had hoped D.UN would be able to maintain its dividend but I was also banking on the crash in the price of oil to be a short term event. Oil is down and may stay down for longer than anyone expected. Companies like D.UN, with a fair amount of exposure to the western Canada economy, must modify their outlook.

On the bright side, I don't use the DRIP and so its elimination is a plus in my biased opinion. With D.UN unit price as depressed as it has been of late, the dividend yield was well into the double digits. The DRIP was certainly diluting the value of my holdings.

A one third cut in my dividend income from D.UN is not a financial disaster for me. Oh, it will hurt but I will pay my bills in retirement using the remaining dividend income. What I won't be doing is reinvesting the bulk of my D.UN yield. Most of the fat has been cut but not all. Using the soon-to-be new yield and using today's increased unit value in the calculation, D.UN is still yielding more than eight percent.

And I noticed that the TD Action Notes this morning rates D.UN a buy on its Action List. The folk at TD Waterhouse clearly like the REIT's new Strategic Plan. The new price target is $23. If you are like me, you may have paid too much. I hope you bought a little when Dream dipped below $15 recently. It was a chance to recoup some of your losses.

All in all, life is still good. I can still sleep at night.

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