Cominar Real Estate Investment Trust (TSX:CUF.UN) is Quebec’s largest owner of commercial property, as well as having real estate in Ontario, Atlantic Canada, and Alberta. Overall, its portfolio encompasses 538 buildings and 44.8 million square feet of gross leasable area. It is Canada’s third-largest REIT by assets.
One of the big things that attract investors to this company is its terrific dividend. The current payout is 8.6%, a very nice distribution in a market where 3% is often considered high yield.
But can the company maintain the payout? That’s where things get tricky.
Through the first six months of 2016, Cominar reported $121.6 million in adjusted funds from operations, which is a key measure of profitability for the sector. That works out to $0.72 per share.
Yet dividends for the first six months of the year were $0.735 per share. This translates into a payout ratio of 102%. Most other Canadian REITs have payout ratios between 80% and 90%. This puts Cominar’s dividend at risk.
But perhaps things aren’t so bad. Occupancy increased from 91.9% to 92.6% on a quarterly basis, which should translate into an improvement to the bottom line. The company has also suspended its dividend reinvestment program to prevent further dilution, as well as selling off some non-core assets.
Still, there’s a reason shares yield 8.6%. The market is skeptical of the dividend, and rightfully so. There’s no guarantee the distribution gets cut, but if the payout ratio continues to be 100% or higher, keeping more cash on hand would be a prudent management decision.
