I have problem understanding how they support such a high dividend. I looked at their holdings in the report and found nothing to explain it. Can someone help? They must be using leverage, but to what extent? Bought some shares at $10.4 and would like to add some more, but not before I understand this issue. Thanks in advance.
NRO supports its high dividend by the REIT dividends it gets and by selling it's REIT investments at profitable gains. Also it has taken on a low cost 30% debt position, to invest in REITs with higher dividends or higher growth potential.
It can also sell it's REIT investments without profit and distribute the proceeds as a return of capital, reducing NAV,the market value of its investments (not to be confused with the market value of NRO)
It's possible NRO may maintain its current dividend, even by returning capital. Closed end funds can provide a stable dividend by selling off its investments (even at a loss), as opposed to merely passing dividends on to NRO fund holders. The market price of NRO will inevitable respond to its steadily declining real estate values, and lower NAV.
In its last dividend news rrelease, mgt said it will keep all options open and proceed in our best interests.
The key thing is will real estate stay stable in this flat economy? Will the economy and REITs bounce back in a reasonble time, thus raising NRO's market price? Will the credit crisis blow over: Will this 20% dividend prove to be the opportunity of a life time, driven by irrational market fears? Or will reality force NRO to reduce dividends.
Closed end funds, unlike other funds, do NOT return the NAV of their investments when you sell. There is no redemption, of shares, when you sell, no issuance of shares when you buy. The number of shares are fixed. New investors at the margin pay a premium or a discount, depending on their opinion of mgt and market conditions.
A chart of NRO's price trend, shows the market's current opinion of NRO. Is the market wrong?
Well folks, "you pays your money and you take your chances."