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Strategies & Market Trends : Value Investing
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To: Grommit who wrote (33820)3/17/2009 1:33:34 AM
From: Paul Senior1 Recommendation  Read Replies (1) of 78763
 
Yes, makes sense if I consider that the distribution is a stock dividend - a combination cash dividend and a mandatory rights offering.

But I don't consider it as such. I buy these reits for the cash distributions. Not as something where management arbitrarily makes the stock/cash decision and maybe the other stockholders decide (vote) the ratio of cash/stock. (And of course the majority elect all cash. Which means everybody gets mostly stock) It's also a management decision that worries me - it may be by necessity one step above the other alternative of a distribution cut or elimination.

And another thing I don't like is that whether I sell the shares distributed to me or hold on to them, the value of the distribution -- unlike a regular stock dividend -- is taxable income in the year of receipt (for reits held in a USA taxable account.)

So the way I consider it is that the company reneges on sort of an implicit agreement to pay cash, instead issues me stock and I've got to pay tax on it (in taxable account). This is not what I want from a reit. I want to be receiving money...not paying it out.

Not criticizing you or anyone else who might have reits and has determined the stock distribution is okay for them. It might work out very well -- getting shares at low prices now when the reits are out-of-favor. And if/when cash distributions are fully reinstated, getting that cash on a larger number of shares.
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