Will These 2 High-Yield REITs Cut Their Dividends Again?

Can you trust the dividends from Cominar REIT (TSX:CUF.UN) and another REIT?

| More on:
invest your money

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Dream Office Real Estate Investment Trst (TSX:D.UN) and Cominar REIT (TSX:CUF.UN) have been primarily held by investors for high income. Yet both stocks slashed their dividends within the last couple of years.

Dream Office REIT cut its distribution per share by a third in early 2016 and again by a third in July. Interestingly enough, the stock rallied more than 30% in a few months after the first cut, and the shares trade at roughly that level today.

Cominar REIT cut its distribution per share by ~22% in August, but the stock has rallied ~9% since then.

Before the dividend cuts, Dream Office REIT and Cominar REIT yielded as high as ~14% and ~11%, respectively.

office building
Photo: AgnosticPreachersKid. Licence: https://creativecommons.org/licenses/by-sa/3.0/

Why they cut their dividends

Dream Office REIT is a transforming business. It had a sizeable exposure to resource regions. And, as a result, the business hasn’t done well.

So, the company decided to reduce its exposure in Alberta. In February 2016, it generated 26% of its net operating income (NOI) from Alberta. By May 2017, it had reduced its exposure in Alberta to 14%. The number of properties in the portfolio reduced by ~36% to 106 properties, and the owned square footage shrank by roughly a third to 15.4 million.

This is a part of Dream Office REIT’s multi-year plan to sell non-core assets. As it makes these sales, its cash flow generation declines. So, to have more resources on hand, the company cut its dividend to make it more sustainable.

Cominar REIT has also been selling some non-core assets, which will help strengthen its balance sheet. However, its dividend wasn’t very sustainable to begin with, as the payout ratio was over 100%. The asset sales only worsened the situation. So, it cut its dividend.

Do dividend cuts spark higher share prices?

Dividend cuts in high-yield REITs don’t necessarily lead to higher share prices in those stocks. Rather, the share prices of such REITs have been overly depressed in anticipation of dividend cuts, such that when it happens, it indicates the businesses will have more resources to work with, and the shares rally as a result.

Will they cut their dividends again?

At ~$21.10 per unit, Dream Office REIT offers a yield of ~4.7% with an estimated payout ratio of ~80.5% for this year. The company has a debt/cap of 34%. For now, its distribution is sustainable, but shareholders should keep up to date with its asset-sale program and how it affects its cash flow.

At ~$13.60 per unit, Cominar REIT offers a yield of ~8.4%. However, its payout ratio is estimated to be ~110% this year. So, shareholders shouldn’t be surprised if it does end up cutting its dividend again.

Should you invest $1,000 in Dream Office Real Estate Investment Trust right now?

Before you buy stock in Dream Office Real Estate Investment Trust, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Dream Office Real Estate Investment Trust wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »