I discovered when selling a few shares of SNH that I really haven't been getting a dividend all along but a return of capital. Or at least that is the way SNH classifed my quarter payment. This screwed up my tax situation as my basis has been reduced so if I sell its like a deferred tax in one year instead of being counted in previous years as a dividend. Should I have know this? My broker tells me SNH shares were reclassified at the end of the year as distribution of income.
ROC occurs when a REIT pays out more in dividends then it earns. This usally occurs when they sell assest and reaize gains. This is then classified as ROC. REITs and MLP are designed to be longer term investments and not shorter term vehicles. I have been watching this REIT for a while now cause i believe in the long term trend in an aging population. But the stock is really over bought here so i have been waiting for a pullback.
ROC usually a red flag, although not always. Some companies devour themselves from the inside to keep the dividend coming.. But SNH is covering with earnings. Not that hard to keep track of your basis and depending on tax laws at the time, could work out to your advantage.