What happened
Industrial real estate investment trusts (REITs) are popular among investors for their growth potential and predictable income streams. And they tend to be less volatile than the average S&P 500 company. But that's not the case for Industrial Logistics Properties Trust(NASDAQ: ILPT), which owns more than 400 properties across the U.S.
On Thursday, the REIT had a terrible day, plunging by 23%, as of 3 p.m. ET.
So what
The reason for the drop is that Industrial Logistics Properties Trust announced a dividend cut. And not just a small one -- the company slashed its quarterly payout from $0.33 per share to just $0.01.
The reason? After closing on a major acquisition earlier in 2022, the company is facing difficulties completing its long-term financing plans due to current market conditions. And it is slashing its dividend to keep its liquidity as strong as possible until it can figure its financing issues out.
Now what
As mentioned, one of the main reasons investors buy shares of industrial REITs is for a stable income stream. So, it shouldn't be a big surprise that the market is reacting very negatively to this news, even if it is in the long-term best interest of the company.
According to the press release, the company expects to reinstate its dividend at least close to its previous level in 2023, and if it does, the current price could end up being a bargain for long-term investors. Having said that, this feels like a big red flag, especially with so many solid industrial REITs in the market, and I'm staying away.
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Matthew Frankel, CFP® 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.
