Hotel real estate investment trust ( Ashford Hospitality Trust NYSE:AHT) is under pressure on Friday after declaring its latest quarterly dividend. To make a long story short, the company decided to cut its quarterly payout in half, from $0.12 a share to just $0.06.
It would be fair to say that investors are disappointed with the news. As of 12:30 p.m. EDT, Ashford’s stock had plunged by nearly 15% to a new 52-week low.
Before rushing to judgment, let’s take a closer look at why Ashford cut its dividend.
According to Ashford’s president and CEO, Douglas Kessler, in a statement, “This adjustment effectively preserves capital for more advantageous purposes including strengthening our balance sheet and enhancing our ability to pursue more opportunistic growth such as acquisitions that qualify for our Enhanced Return Funding Program (“ERFP”).”
To be fair, I wouldn’t exactly call this dividend cut surprising. A yield in excess of 10% should be considered a red flag by REIT investors. And with a roughly $375 million market cap and about $4.2 billion in mortgages, Ashford probably should take steps to reduce its leverage.
Dividend cuts are almost always perceived as bad news, and that’s especially true in the real estate sector. After all, most people who invest in REITs do so not only for high dividends but for steady income.
While Ashford’s dividend cut was undoubtedly done with the company’s financial well-being in mind, it’s certainly a disappointment for investors who were hoping for the stock’s double-digit yield to continue.