What does a dividend cut really mean? Let's look at history.Hi all, RioCan shareholder here who is also a fan of FCR.
When RioCan cut distributions, massive panic ensured on the variouse RioCan forums (here, Yahoo, etc).
I wrote this post the night of the cut and it helped a lot of people calm down and not panic sell. As you know, RioCan ended up bouncing back stongly the day after.
FCR is a really great company with solid management, some of the best real estate in Canada and a wonderful development pipeline. Hope this helps.
Original post link:
https://stockhouse.com/companies/bullboard?symbol=t.rei.un&postid=32034142
"So we now have a dividend cut. Many people have never seen this before and are wondering, what does this mean? It this good or bad? And how does it affect the stock price over the immediate term and the long term?
The good news is, this is not the first time a REIT has cut a dividend so it's easy to look at history and see what happens.
H&R REIT cut their dividend this May 14th, a Thursday, when the stock closed at $8.54. On Friday May 15th, their stock ended the day UP, closing at $8.56 and then proceeded to go almost straight up. The stock as of today's close is $14.47, up 69%.
BTB REIT also cut their dividend this May 14th, that day the stock closed at $3.15. On Friday May 15th, their stock ended the day at $3.10. The stock is now $3.69, up 19%.
Looking back even further, in 2016, Dream Office had a huge problem. Their stock was down big due to negative sentiment, even though their net asset value was much higher than the stock price and they had a really juicy dividend yield (sound familiar?), they wanted to do something in order to get the market to see the value. They cut the dividend on February 19, 2016. The announcement was made before market open and the stock rallied huge that day, up almost 14%, and over the short term of a couple of months, the stock jumped from ~$14 to ~$20.
From a financial standpoint, there is zero material change when a company cuts its dividend. The money does not disappear. The money is still there in the company and owned by the company, only instead of distributing it to shareholders, it is held in retained earnings and it can be invested in projects that deliver high ROI, or buying back the stock. As the index fund investors would say, the total return is exactly the same, which is why stocks that don't pay dividend rise sharply, so the return comes in the form of stock price appreciation (ie. Berkshire Hathaway).
So what will happen to RioCan stock tomorrow? I have no idea. If the market sees us as an HR.UN or BTB.UN, the stock will be flat. If the market see us as a D.UN, we will massively rally and in a couple of short months, see $24-25. Ultimately, it really doesn't matter what some small time traders on some Yahoo or Stockhouse forum do, we're too small to matter, it's going to move based on how the institutions see the stock. In listening to the last couple of conference calls, the analysts suggested that they would like RioCan to cut dividends and invest that money for a higher ROI. Perhaps the analysts opinion factored into the Board's decision. If this is the case, then the stock could moon. But really, we won't know until the market opens tomorrow, and the stock price will not be decided by the people here on this group, it will be decided by the instituions."