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A 6.6% Yield That Could Be in Jeopardy

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CTO Realty Growth (NYSE: CTO) is a real estate investment trust (REIT) that owns 22 retail properties in 10 states. Its tenants include…

  • Firebirds in Jacksonville, Florida
  • Fidelity in Albuquerque, New Mexico
  • Eastern Commons shopping center in Henderson, Nevada.

After a dividend cut in 2010, the company has done an excellent job of raising its dividend since 2013.

Chart: CTO's Annual Dividends per Share
The above chart includes only regular dividends. It excludes an $11.83 per share special dividend paid in December 2020.

So the dividend growth, particularly that of the past few years, has been outstanding. But can it continue?

To answer that question, we need to look at CTO’s funds from operations (FFO), a measure of cash flow used by REITs.

Last year, FFO declined to $22.1 million from $27.5 million in 2020. Safety Net does not like to see declining cash flow. That’s a concern. This year, FFO is projected to come in at $25.3 million, which is an improvement over 2021’s total but still below what was achieved in 2020.

Dividends paid in 2021 was $25.9 million. That’s too much considering FFO was just $22.1 million.

In other words, CTO paid out 117% of its cash flow in dividends. That’s unsustainable.

This year, the company is forecast to pay out 100% of its cash flow in dividends. If the payout ratio stays at or below 100%, it’s okay, because it means CTO is funding the dividend with its business operations. But if dividends paid is higher than estimates or if FFO ticks lower than expectations, the dividend will not be safe.

It’s tough to say whether this dividend is secure or whether it appears to be on the chopping block. It will depend on how well the company can convert rents to FFO.

Dividend Safety Rating: C

Dividend Grade Guide

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