Slate Office REIT (TSX: SOT.UN) cut its cash distribution by almost a half from CAD$0.75 to CAD$0.40 per unit. This frees up CAD$26 million of capital annually.
Initially, Slate Office plans to use the capital to reduce its debt levels. This will increase the financial flexibility for future investments.
Quick Business Overview
Slate Office recently generated income from 41 office properties, had a portfolio occupancy of 87.6%, and had a weighted average lease expiry of 5.8 years. These should help the REIT generate stable cash flow over the next 5 years.
The REIT’s recent interest coverage worsened to 2.3x compared to 2.7x at the end of 2017. Additionally, its recent weighted average debt interest rate was 4.3%. The rate had edged higher every quarter since 3.6% from a year ago.
The Dividend is Much Safer Now
Slate Office’s 2019 FFO payout ratio will be much more sustainable at ~64% based on 2018 FFO per unit. The big buffer is needed because 2019’s FFO is estimated to decline due to the reduced interests in 6 Greater Toronto Area assets. The FFO per unit that will be generated during Q2-Q4 will give a sense of the FFO generation power of Slate Office’s assets.
Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP) just increased its cash distribution by 5.1% to an annualized payout of US$2.06 per unit. That implies a yield of 7% at US$29.29 per unit.
A Sustainable Dividend
In 2018, it increased its funds from operations (“FFO”) per unit by nearly 14%, resulting in a payout ratio of <91% for the year, which was a meaningful improvement from 2017’s payout ratio of 98%. The lower payout ratio makes a safer dividend.
Management aims for cash distribution growth of 5-9% per year in the stock. It’s conservative to assume a cash distribution growth rate of 5% because, since 2011, its distribution has compounded at a growth rate of 5.4%.
The U.S. stock market, using SPDR S&P 500 ETF Trust (NYSE:SPY) as a proxy, has bounced about 8% from a low in December. The ETF has some strong resistance at the US$270 range. It needs to break that range and make a new high to indicate that the correction that started in October won’t continue.
Despite the market rebounding, there are still some good-value quality U.S. dividend growth stocks for long-term investing. Here are two out of seven top U.S. dividend ideas I wrote about here in December. They’re still great buys today.