What happened
Shares in the Brookfield Real Assets Income Fund(NYSE: RA) were down by a whopping 20% as of midday Wednesday. The plunge was triggered by the board of directors declaring that the fund was slashing its monthly distribution. The previous monthly payout of $0.199 per share will be repeated in September, but from October onward, it will drop to $0.118 per share -- a nearly 41% cut.
Image source: Getty Images.
So what
The new monthly distribution annualizes to $1.416 per share and puts the stock on a theoretical dividend yield of 10.5%. In addition, the fund's net asset value (NAV) per share stood at $14.84 at the end of June compared to a stock price of $13.44 at the time of this writing.
Now what
As tempting as it may be to argue that the stock is a good value -- based on its dividend and discount to NAV -- potential investors should consider a couple of things.
First, as you can see from this table, the company's dividend of $2.39 wasn't fully paid out of net investment income for the last six years. Instead, the fund was making a relatively high proportion of its return of capital distributions from NAV.
Metric | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|---|---|
Net asset value per share | $25.14 | $25.15 | $22.07 | $23.21 | $20.02 | $20.12 |
Net investment income per share | $1.74 | $1.52 | $1.10 | $0.80 | $0.78 | $0.76 |
Distribution from net investment income per share | $1.84 | $1.53 | $1.30 | $0.68 | $0.92 | $0.74 |
Return of capital distribution per share | $0.55 | $0.86 | $1.09 | $1.71 | $1.47 | $1.65 |
Total distribution per share | $2.39 | $2.39 | $2.39 | $2.39 | $2.39 | $2.39 |
Data source: Company presentations.
Note that the fund's net asset value per share was $14.84 in June, a significant decline from its $20.12 at the end of 2022 -- probably reflective of extremely tough conditions for the commercial real estate debt market. As such, don't be surprised if even the now-lower dividend proves unsustainable over time, nor if the fund's NAV continues to decline.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
