By Valuentum Analysts
REIT dividends aren’t always safe, and investors should be aware of the risks. For starters, many REITs remain dependent on the healthy functioning of the capital markets. What this means is that, generally speaking, REITs often cannot retain sufficient internally-generated capital to handle both their future expansion efforts and future dividend payments. This is why many of them continuously issue new equity (stock) or raise new debt, and such a business model is far different (and riskier) than a well-capitalized corporate that can fund growth initiatives via internally generated free cash flow in our view.
In particular, we think some office REITs, some retail REITs, and some healthcare REITs could face pressure and end up cutting their payouts in the coming years. Office REIT SL Green (SLG) recently slashed its dividend on December 5 of last year, while office REIT Vornado Realty Trust (VNO) reduced its payout on January 18 of this year. These are but two of the latest high-profile REIT dividend cuts. From where we stand, the writing is on the wall about the growing risks to REIT dividends, and investors hoping for real estate to return to its glory days as e-commerce proliferates and employees clamor to work from home may be kidding themselves. Times have changed.
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