Dividend Behaviour of U.S. Equity REITs

Abstract

A new era began for U.S. equity real estate investment trusts (REITs) around 1992. This study is the first to document the dividend smoothing, determinants of dividend payouts, and the market reaction to dividend announcements of the modern REIT. We find the Lintner (1956) smoothing parameter suggests a high level of dividend smoothing in quarterly data and, although we observe substantially less smoothing in the annual data, modern REITs smooth dividends at least as much as their industrial counterparts. Beyond the dividend paid last period and contemporaneous earnings, usual determinants of dividend behaviour in non-REIT firms are not economically significant, which is a departure from old-era REITs. Additionally, as compared to non-REIT firms, we find muted excess stock returns upon announcements of dividend changes. Overall, our findings suggest that managers set a stable (smooth) dividend policy even in the relative absence of market imperfections.