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Vornado Realty (VNO) Announces Special Dividend: Time to Hold?

Zacks Equity Research

Vornado Realty Trust VNO recently announced a special dividend of $1.95 per share. The dividend will be paid on Jan 15, 2020, to stockholders of record on Dec 30, 2019. Notably, $1.74 of the special dividend classifies as long-term capital gain.

Solid dividend payouts remain the biggest attraction for REIT investors as the U.S. law requires these companies to distribute 90% of the annual taxable income in the form of dividends to shareholders. Moreover, special dividends are usually paid by REITs on capital gains from the sale of assets to avoid paying taxes. Recently, Host Hotels & Resorts HST also announced a special dividend of 5 cents per share.

Particularly, the special dividend from Vornado comes owing to gains from the transfer of a 45.4% common equity interest in its portfolio of high street retail assets on Upper Fifth Avenue and Times Square, its 25% interest sale in 330 Madison Avenue, as well as other asset sales disclosed previously. These were, however, partly offset by a tax deduction, resulting from its prior investment in Toys “R” Us.

Notably, amid resilient economy and stable job-market environment, demand for Vornado’s premium assets in high-rent, high barrier-to-entry markets will likely remain healthy. The company’s strong balance sheet also supports its growth endeavors. Further, it is redeploying sale proceeds to fund strategic acquisitions and redevelopments, which augurs well for long-term growth.

However, consistent with its portfolio-repositioning efforts, Vornado has been aggressively disposing the company’s assets. Although these streamlining efforts are expected to propel growth over the long term, the earnings dilutive impact from asset sales cannot be bypassed in the near term. Also, shrinking footfall at malls as well as store closures and retail tenant bankruptcy are other concerns.

Over the past three months, shares of this Zacks Rank #4 (Sell) company have outperformed the industry it belongs to. In fact, its shares have gained 5.7%, while the industry has declined 4.9% during the same time frame.

Stocks to Consider

Prologis, Inc.’s PLD currently sports a Zacks Rank of 1 (Strong Buy). The company’s funds from operations (FFO) per share estimate for 2019 has been revised marginally upward to $3.31 in two months’ time. The stock has rallied 6.2% in six months’ time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Duke Realty's DRE Zacks Consensus Estimate for the current-year FFO per share moved north to $1.44 in the past two months. This Zacks Rank #2 (Buy) company’s shares have gained 5.5% over the past six months.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Vornado Realty Trust (VNO) : Free Stock Analysis Report
Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
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