Saturday, August 5, 2017

Is The Dividend or Distrubition Safe?

     As an investor I am like most people, I want to get paid via a dividend or distribution.  Any investor loves dividend increases.

     Every time a company makes an announcement regarding their dividend or distribution, the result can be one of four things:  dividend or distribution can be increased, decreased, ssuspended, or remain the same.

     I recently wrote about a REIT that I owned has lowered its annual distribution.  Since writing that post, I received another distribution payment and increased the number of units via drip.  Going forward the drip will be turned off.  Dream Office REIT (D.UN.TO) reduced its annual distribution rate from $1.50 to $1.00 effective with the July 2017 distribution and corresponding August 15th. I currently own 631 units in my margin account and 168 units in my TFSA.  That means my annual dividend/distribution income will be reduced by $399.50.

      Another REIT that I owned, Cominar REIT (CUF.UN.TO) just released earnings in the past week. They also announced  a distribution cut from  $1.47 per unit per year to $1.14 per unit per year. This reduction will start with the August distribution to be paid out September 15th. I currently own 176 units in my TFSA.  This reduction will reduce my annual dividend / distribution by another $58.08

      Besides holding CUF.UN.TO inside my TFSA account,  I hold CUF.UN.TO in small savings account.  The interest rate for high interest rate savings account are so low that it is actually laughable.  So I started a small experiment with a few positions. These 2 positions are 26 units of HNY.TO and 152 units of CUF.UN.TO.  Horizon's Natural Gas Yield ETF has ticker symbol HNY.TO.  So for this savings account, my annual distribution is reduced by $50.16My adjusted cost base of CUF.UN.TO is $14.25 per unit.

     This distribution cuts are proof it is best to diversify. A reasonable portfolio should be around 15 to 20 positions with their weights more equal to each other. When there is a cut to a major holding and not many positions, you will feel it more as a greater percentage of your income is lost. 

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

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