Determinants and Dynamics of Dividend Payouts by US REITs

We examine dividend payout behavior of US Real Estate Investment Trusts over time. Our sample contains 6157 REIT dividend announcement observations over the period of 1990-2006. We find that US REIT dividend payout ratio has increased over time, as has increased REIT dividend yield. Also, consistent with the literature, while dividend to net income ratio appears to be quite volatile, dividend to operating income after depreciation appears remarkably stable, which show that US REITs do not form their dividend payout decisions based on net income. We further investigate abnormal returns associated with REIT and non-REIT firm announcements for distribution of regular and irregular dividends. We find that abnormal announcement returns for regular dividends, although positive are close to zero, both for REITs and non-REITs. When irregular dividends are announced abnormal returns in the case of REITs are only about 1%, but are much higher (6%) for the non-REIT firms. Finally, we examine the relationship of REIT characteristics and announcement returns, in the case of regular and irregular dividend announcements. We find that as expected OIAD is positively related, while leverage is negatively related to returns in both type of announcements. However, capital expenditures, long term debt issue, depreciation and EPS are related differently to announcement returns, whether we deal with regular or irregular dividends.