Shareholders of Artis Reit, got a bit of a shock & surprise yesterday when they learned that although earnings were right about as expected – the dividend would be cut in half. The new dividend will be 0.54 annually.
There are two schools of thought on how this will play out.
- Panic will set in – the price will drop sharply at open today. Income investors who owned Artis for it’s juicy yield will drop it for something else to substitute their monthly income.
- The longs and optimists will say this was a good move. The company is trading at a big discount to NAV and will now have extra cash to buy back shares at a steep discount. In the long run, the stock price will jump substantially and the dividend will be increased again in time.
Obviously nobody knows exactly what will happen, but I tend to think it will be a mix of the two. We should see a drop in price right away, but as the dust settles, I think in the long run this will in fact be good for the business. As much as I enjoyed a juicy 9%+ yield, with the current earnings, it was unsustainable.
The good news, is that Artis has announced it plans to start immediately buying back shares. They have also identified up to 1 billion worth of assets which they plan on selling. This means they will have a boatload of cash to buy back shares (at a big discount to NAV).
Artis is also currently working on 8 new developments (one of which I can see first hand from my office window).
On a personal note, this cut will drop my dividend income by over $300 over the next 12 months, which is never fun – but hopefully the stock price can recover, and once the balance sheet is strong again they can raise it again. This move is very reminiscent of what Dream Office (D.UN) went through a few years ago when they cut their distribution from .1866 to .0833 in 2016. The stock price dropped almost immediately to a low of $14.57. It has since recovered and will open the market today at $23.57. Dream has yet to increase it’s dividend since it’s two dividend cuts.
If you are an income investor, relying on the cash from this distribution, you may want to cut ties (although keep in mind, even with the cut, this is still yielding close to 5%, and should have only upside from here).
If you care more about overall growth, and long term viability, I’d hold and wait for the price to recover. If the stock does take a big dip in the next day or two – consider loading up. Keep in mind the net asset value for this Reit right now is 15.11. This represents almost a 4.00 discount.