Cash Distribution Per Unit (CDPU)

What Is Cash Distribution Per Unit (CDPU)?

Cash distribution per unit is a measure, used in Canada, that refers to the amount of cash payments made to individual unitholders of a specified income trust. The ratio is calculated by taking the total amount of cash distributions divided by the total amount of unit shares issued.

CDPU   = Total Cash Distributions Total Issued Unit Shares where: \begin{aligned}&\text{CDPU}\ = \frac{\text{Total Cash Distributions}}{\text{Total Issued Unit Shares}}\\&\textbf{where:}\\&\text{CDPU}\ =\ {\text{cash distribution per unit}}\end{aligned} CDPU =Total Issued Unit SharesTotal Cash Distributionswhere:

Understanding Cash Distribution Per Unit (CDPU)

Cash distribution per unit is a type of yield measure reported for Canadian income trusts. Canadian income trusts are a popular investment in Canada and can be compared to U.S. real estate investment trusts (REITs). They account for approximately 10% of the companies on the Toronto Stock Exchange. Their structuring as a corporation and a trust provides for significant cash distributions to investors.

Cash Distributions

Canadian income trusts are one of the top income-producing investments in Canada. They are traded as units, offering yields that typically exceed 10% with distributions that are often paid monthly.

Investments in an income trust seek to generate current income. Holdings can vary across equity, debt, royalty interests and real estate. As a result, income can be generated from dividends, interest, royalties and lease payments.

Income trusts are usually managed to a targeted objective that includes income generation from holdings in a specific market category such as energy companies and real estate. Distributions from income trusts are not required however they are used by the management company to lower their taxes. It is common for Canadian income trusts to pay out all income in order to avoid tax expenses.

The cash distribution per unit measure is a useful ratio summarizing the amount that every single unitholder will receive as a trust payment. This measure can be compared to a dividend announcement, which notifies an investor of the distribution amount they can expect to achieve per share that they own. The more income the trust earns, the more income can be paid out in the form of trust payments. Income trusts will often provide estimates of their annual cash distribution units when discussing their financial results and performance. Expectations for future cash distributions per unit is also typically included when discussing revenue and earnings growth projections.

Income trusts have the flexibility to establish cash distribution per unit payouts. Management teams consider business reinvestment allocations when determining cash distribution percentages. Some business analysts argue that paying nearly 100% distribution of earnings before income taxes to unitholders is a negative thing for firms, as there is little money left for investing in the business in order to stimulate growth.