Vornado (VNO) Cuts Dividend by 20%, to Pay One Dividend in 2024
Vornado Realty Trust VNO recently announced that its board of trustees has declared a dividend of 30 cents per common share for the fourth quarter of 2023, marking a reduction of 20% from 37.50 cents paid out in the first quarter of 2023.
The dividend will be paid out on Dec 27, 2023, to shareholders on record as of Dec 15. The aggregate dividend for 2023 is 67.50 cents per share.
Solid dividend payouts remain the biggest attraction for REIT investors. However, in April 2023, the company postponed the dividend payment until the end of 2023, projecting reduced taxable income for this year, mainly due to higher interest expenses.
Before this, in January 2023, VNO had announced a 29.2% cut in its quarterly cash dividend from 53 cents per share to 37.50 cents per share.
For 2024, Vornado anticipates paying a single common share dividend in the fourth quarter of the following year as part of its common share dividend policy for the year.
The United States office real estate market has remained choppy for almost the entirety of 2023, with negative absorption and increasing vacancy levels. The lackluster environment can be attributed to the continuation of work-from-home, flexible or hybrid work setups, which have diminished office space utilization.
Although the demand for premier office spaces remains healthy and continues to aid leasing activity at the company’s properties, which have a significant presence in New York City, persistent macroeconomic uncertainty has led to an overall slowdown in leasing activity.
This has most likely curbed the company’s potential to reach its full leasing capacity over the past few quarters, stalling its growth temp to a certain extent. In the third quarter of 2023, occupancy in the New York portfolio was 89.9%, down 40 basis points year over year.
In addition, with prevailing high-interest rates, Vornado’s interest expenses have gone up significantly. In the third quarter of 2023, interest and debt expense rose 14.8% year over year, hurting the company’s funds from operations (FFO) per share growth. The company may also find it difficult to purchase or develop real estate with borrowed funds in a high-interest rate environment as the costs are likely to be on the higher side.
Therefore, it becomes imperative for Vornado to focus on maintaining its retained cash flow at desirable levels and preserve balance sheet strength.
As of Sep 30, 2023, the company had $3.2 billion of liquidity, consisting of $1.3 billion of cash and cash equivalents and restricted cash and $ 1.9 billion available under its $2.5-billion revolving credit facilities.
Analysts seem bearish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for Vornado’s 2023 FFO does not indicate a favorable outlook as it has been revised 1.1% downward over the past month.
Its shares have gained 24.6% in the quarter-to-date period compared with its industry’s 11.9% growth.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK. While PK sports a Zacks Rank #1 (Strong Buy), EGP and STAG carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.70.
The consensus estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% over the past two months to $2.28.
The consensus estimate for Park Hotels & Resorts’ current-year FFO per share has moved 1.5% northward over the past month to $1.98.
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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