The stock and cash dividend combos offered by capital-starved real-estate investment trusts appear to have been a short-lived fad with relatively few companies adopting the distribution structure amid massive equity raises.

When REIT heavyweights Simon Property Group Inc. (SPG), the largest U.S. real estate investment trust, and Vornado Realty Trust (VNO) announced earlier this year they would pay a portion of their common dividend in stock following a revised IRS rule on the matter, a stampede of peers were expected to follow suit. However, only 10, or roughly 7%, of all public REITs adopted the policy, according to data compiled by BMO Capital Markets.

The stock and cash dividend combo had been hailed by Wall Street analysts as an efficient capital-saving measure amid a brutal credit crunch. But, there were initial concerns that many retail investors wouldn't understand the tax implications of the stock/cash dividend distribution as they would still have to pay a levy on the stock portion of the dividend.

"They have not been soundly embraced by investors," said Paul Adornato, an analyst at BMO Capital Markets. He noted there has been a push back from some investors primarily because a stock is taxable to the investor.

Alternatively, Adornato noted there is a trend emerging where some REITs, instead of reducing their quarterly dividends are eliminating it altogether for three quarters and making one distribution at the end of the year. This way they can accurately calculate the minimum required dividend for the year, he said.

"The REITs have been raising equity and strengthening their balance sheets in such a way they found...eliminating the cash dividend is not necessary. They are able to satisfy the REIT dividend requirements by sticking to a lower all cash dividend while still retaining significant capital," he said.

Since the beginning of the year, REITs executed 45 common stock offerings through May, raising some $14.2 billion in capital, according to the National Association of Real Estate Investment Trusts. By comparison, there were 76 offerings in all of 2008 totaling $14.5 billion. The optimistic tone has fueled REIT prices higher by 54% since March 6 - where many experts say a bottom was hit - through May, according to the FTSE NAREIT All REITs Index.

REITs were established in the 1960s to give individuals an easy way to invest in income-producing real estate. The companies, which typically focus on distinct areas of real estate, such as offices, retail properties or apartments, must pay at least 90% of their taxable income out as dividends.

"Our view has been through this whole process that first and foremost, REITs should cut the dividend to what their taxable income is," said Thomas Bohjalian, senior vice president and portfolio manager at Cohen & Steers Capital Management. "We would prefer a cash dividend. If a company required more capital, then we are OK with a stock dividend in lieu of cash in order to retain more capital."

"Going forward, the trend will be further recapitalization of the industry. Certainly, the (REITs) that have raised capital, I suspect, at some point, will make a decision to discontinue their stock dividend," he said.

Indeed, Simon Property Group, said earlier this month it plans to resume paying a cash dividend in 2010. The retail landlord in the first quarter adopted a dividend policy allowing it to pay 90% of its distribution in stock and 10% in cash to preserve capital amid a continuing credit crunch and weakening market fundamentals. For the second quarter, the dividend was 80% stock and 20% cash. Now, the company is now seen very well capitalized after recently issuing roughly $1.6 billion in equity.

CBL & Associates Properties, Inc. (CBL) is returning to an all cash dividend for the second quarter after distributing a stock/cash combo dividend in the first quarter, a spokeswoman said.

Cohen & Steers' Bohjalian said he expects REIT dividends to be roughly flat for 2010 with growth picking up in 2011 and beyond.

"We feel like we're in a much better position than we were three months ago when we had concerns about liquidity and solvency." "While (the industry) is still a little cloudy, we do have better clarity."

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com