What Valuation Metric Is Best To Use When Analyzing MLPs and REITs? (01/28/2015)
To more accurately analyze fair value for MLPs and REITs we recommend that the subscriber utilize the Cash Flow / Funds From Operations (CFL / FFO) valuation option.
When using this option, it’s important to emphasize the idea that the orange line is relevant as it is with other companies. However, since REITs and MLPs are primarily valued based on their income distributions (dividends), the dividend line (honeydew/white) could be considered a more conservative valuation reference line.
Therefore, it might be more conservative to look at the price in comparison to the dividend line when analyzing MLPs and REITs. As it is with all valuation lines on a FAST Graph, they should be thought of as “valuation reference lines” that can be analyzed when determining sound buy, sell or hold decisions.
Here is a video focused on FFO that will assist you. It’s a little outdated (2012), but it will still be useful to you.