This will help them out through the bad times. During the good times they paid up to 20%, now it time to give back 10%. IT IS EASY AND VERY LEGAL.
Sounds pretty unlikely, right? Think again, in the turbulent financial world of 2009. At least one Real Estate Investment Trust (REIT) has in effect done so, and others may follow.
The IRS in December released Revenue Procedure 68-08, which allows REITs to declare dividends in as much as 90% stock and as little as 10% cash while remaining in compliance with IRS requirements to distribute 90% of annual income. The new rule is now effective only through 2009 but could readily be extended if economic turmoil continues.
Has this been extended or do you have to get a special IRS letter of approval. If my tax accountancy is correcto, if it was allowed in the past during asset price deceleration, it can be used tentatively with private letter rulings?
And, the government is going to seize all of our gold too. You are as bad as the gold bugs. Sell your stock if you think you are going to be confiscated. Wow, a small decline and you are ready to go into the bunker.
Don't ignore the fundamentals. Back in 2008-2009, MBS was almost worthless and M-REIT's were in dire times. The purpose the IRS allowed REIT's the freedom to declare "elective dividends" is to allow them to retain cash in difficult economic times. WE ARE ENTERRING VERY TURBULENT TIMES where the "Carry Traders" or "Yield Spread Suckers" are going to get hurt very badly in BV erosion and hedging losses as FED revereses policy. But that is not the worst of it. Most investors who own REIT shares do so mainly for their cash income streams. Suppose a REIT declares a $1 dividend payable a dime in cash the 90 cents in stock. The stock itself will trade down by $1 on ex-dividend day. Shareholders will get a dime per share in cash, but the entire dallar will carry a tax liability under current tax code. If the divy is cut to a dime from a dollar, Figuring tax at 35% for federal and 5% for state in my situation, I pay 40 cents of federal income tax, the NET CASH VALUE IS A MINUS 30 CENTS. The 90 cents in stock is just paper. In effect, they cut the corporate asset pie into more slices, each slice is worth less. This is also another way of selling more stock and raising capital and helping out the government with more tax revenue to pay the higher treasury bill interest.
The reason I brought this up, because the higher rates are creating very difficult times for M-REIT's expecially the agency MBS ones. I know management doesn't want to cut the dividend, but they still could raise cash by paying the dividend in stock. Investors would pay taxes on the whole amount so BIG BEN will be happy and it fools the little dividend suckers. They don't have to worry about the stock prices dropping, they already have for the interest rate increases and they always drop on divy ex. dates, managment can't be blamed for anything. IT MAKES SENSE. The REIT that did this in 2009 actually went on to rise in the 80's alot higher than when they paid cash dividends.