Martin Lee @ Sg
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The Dividend Myth of REITs

REITs has always been a popular topic of discussion among Singapore investors who want to invest into an instrument that can give them good dividend yields.

I wrote this article Are Singapore REITs a Good Investment? last year to take a closer look at why REITs had failed to deliver on its promise of steady dividend income.

Teh Hooi Ling, Senior Correspondent at SPH, had recently done some analysis on the same topic:

The REIT Myth Busted

In the article, she wrote about how most of the REITs had taken back all the dividends they had paid out by doing rights issues.

The actual article that was published in last Saturday’s Business Times comes with a table that gave the breakdown of all the dividends that were paid out by Singapore REITs, as well as the capital that they “clawed” back from unit-holders by doing rights issue.

However, it is not an doom and gloom story for Singapore REITs investors.

While the dividend income had indeed failed for most of them, investors who had invested into more than half of the Singapore REITs from IPO and dutifully deployed capital into them to take up their rights entitlement would still have made money.

And for those who are clueless about rights issue, they would have lost a lot of money.

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6 comments
Peter says 7 years ago

Hi Martin,
K-Reit just issue right issue at 85c. Could advise if this is worth investing? Thanks.

Reply
    Martin Lee says 7 years ago

    Dear Peter,

    A lot of controversy over the REIT. Don’t find it enticing.

    Reply
Mark says 7 years ago

I feel that the article is very one-sided and is written by someone that is weak in maths and knows very litle about the market.

she quoted the CMT example that one will have a negative cashflow if all the dividends and rights are counted. But rights can be sold. If you have sold your rights, you would certainly get back your sum. Even if you have subscribed to the rights, you can still sell off the additional shares in the open market and gotten your money back. For me I will use profit to measure the success of the reits and not cash flow. Eg
Profit = (current price of share * units held + dividend) – (initial IPO price + cost of all the rights).

Reply
    Martin Lee says 7 years ago

    Dear Mark,

    With all due respect to the author, she actually included a table that shows the profit that takes into account the capital appreciation and all the factors. Unfortunately, this is not shown in the online version of the article (She’s more than competent in maths, she is a CFA holder).

    Someone reproduced it though:

    http://www.investmentmoats.com/money-management/reit/the-reit-myth-busted/

    Reply
James says 7 years ago

For good stock dividends play, it’s good investment for long term of min 10 yrs, provided the yield is more than FD’s interest rate & the dividends are re-invested into the same stock for yield compounding.

Rights issue at discounted price is also good for re-investment into the same stock for the same yield compounding over time. This is what is known as you get paid for purchasing the stocks by getting the regular dividends & overtime the compounded yield can work out to be several 100s% interest rate as compared to FDs interest rate or even capital growth of stocks which don’t pay any or very little dividend. A study has been done on this in USA over 10-100 yrs.

Reply
Nuts says 7 years ago

For companies that have culture of treating their shareholders right, I still think US markets set the standard. I usually invest regularly into large companies with big moats and market share and pricing power. And they need to pass my filters of consistently big operating cash flows year-after-year even during long recessions, and at least 10+ years of increasing dividend payouts. Better if got history of 50+ years of consecutive dividend payouts and 30+ years of consistently higher dividend amounts. Such companies with current dividend yields of bleah 3% can grow to 10%-15% dividend yields on cost-basis within 10 years easily.

As for S’pore market, I just dump some money into STI ETF whenever the dividend yield goes above 5%. I.e. basically during recessions.

Reply
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