In recent years, investors especially in Singapore and Hong Kong seem to be hot on the trail for high cash dividend paying counters. Why is this so? What is the allure with such high cash dividend paying stocks?
The Question Isn’t Why Dividend Stocks. But Rather, Why Not?
For a large portion of retail investors, one of the key reasons that resulted in them favouring dividend over non-dividend paying counters could be explained by the “A bird in hand is worth two in the bush” theory.
As cash dividends are more tangible compared to capital gains, some investors tend to favour something that is tangible and within their grasp compared to another that whose future is rather murky. Another would be that cash dividends if paid out regularly (Depending on the company’s policy) would be a steady stream of ‘recurrent’ cash for investors instead of waiting for a lump sum of capital gain after a period of years down the road. This could also be explained from a psychological aspect where many tend to favour returns NOW than enjoy delayed gratification in the future.
So Why Have REITs Been The Highlight For Dividend Chasers?
Real Estate Investment Trust (REITs) are often instruments that offer investors the opportunity to invest in a professionally managed portfolio of real estate. The main objective of REITs would be to supply investors with a steady stream of dividend income.
One reason that REITS have been paying out such a high percentage of their earnings was due to a regulatory effect based on their operating structure. As highlighted in MoneySENSE (A National Financial Education programme for Singapore), REITs in Singapore are required to distribute at least 90% of taxable income each year to enjoy tax exempt status by IRAS (Subject to certain conditions).
A REIT that has recently announced the continuation of its dividend payout a few days ago was Cache Logistics Trust (SGX:K2LU) with the announcement of their quarterly gross dividend of 2.14 cents (S$0.0214) per share.
Over the past four quarters, Cache Logistics has been a rather consistent dividend payer:
Over the Trailing Twelve Months (TTM) period, Cache had declared a gross cash dividend (Portion of this amount was subject to taxes) of 8.564 cents (S$0.08564).
Based on a backdrop of Cache Logistics’s 24 Oct 2014 market price of S$1.18 per share, they had a gross dividend yield of 7.26%!
Cache Logistics was by no means a one trick pony in terms of consistency. Their Distribution Per Unit (DPU) which can be loosely interpreted as dividends per share, had been steadily growing over the past 3 years.
From the comparative diagram shown above for 2013, we can see why REITs have been favoured from a yield standpoint over other investment vehicles available in Singapore. Even the 12-month FTSE Straits Times REIT Index at 6.5% had a dividend yield of almost twice that of the FTSE Straits Times Index.
Value In Action
For those looking to earn from an income producing portfolio rather than a capital appreciation one, REITs may be worth another look for you.
In the next few weeks, we would be coming up with some criteria to look out for REITs with good financial as well as operational practices!
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All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong does not own any shares in the companies mentioned above.