Sustainability of REIT dividends
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Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
Authors
Date
2023
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
63
Series
Abstract
In this paper, I examine the 3-day announcement returns, 12-month buy-and-hold returns, and subsequent dividend development following the announcements of unsustainable dividends of real estate investment trusts (REITs) listed in the United States. I define an unsustainable dividend as a quarterly distribution that exceeds the earnings of the last known quarter and use dividend payout ratios to proxy for the magnitude of payout sustainability. I find that unsustainable dividends and high payout ratios lead to positive abnormal announcement returns. However, regarding long-term returns, higher payout ratios lead to weaker performance, while the sustainability of dividends does not show a significant impact. I also find that high payout ratios decrease the probability of a subsequent dividend cut, while the unsustainability of a dividend implies the opposite, however, only very weakly. Overall, the findings imply that investors might be fooled by unsustainably high dividends, which are likely to lead to weaker performance in the long run due to managers possibly, due to self-incentives, engaging in value-destroying activities, such as forgoing positive NPV-investments and accessing external capital to obtain funds to finance a stable stream of dividends when the earnings are not sufficient to cover the payments.Description
Thesis advisor
Torstila, SamiNyberg, Peter
Keywords
REIT, dividend sustainability, behavioural finance, dividend announcement