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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.

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