3 Dividend Pitfalls for Dividend Seeking Investors

There is nothing wrong with investing in dividend stocks to generate passive income for your retirement planning. However, it will cause a huge dent in your retirement portfolio if you are investing wrongly. The following are the 3 dividend pitfalls that you have to avoid.

Pitfall No 1: High Dividend Yield is Lagging

Everyone wants to invest in shares which give high dividend yield. It is a no-brainer to choose Share A with a 10% dividend yield over Share B with a 4% dividend yield. However, investors need to be very careful when investing in shares with high dividend yield because ‘dividend yield’ is a lagging number. The high yield could be caused by a sharp drop in the current stock price due to weakening of the fundamentals or poor forward-earning guidance. Investing in such shares may instead cause investors to lose part of the capital invested and receive reduced dividend in the future.

dividend yield - financial alliance

Pitfall No 2: Dividend Pay-out Ratio is Not Guaranteed

There is no guarantee that the underlying shares will continue to pay dividend. The management can change the dividend pay-out ratio due to the company’s profit & loss position, cash flow situation, future expansion considerations and other reasons. Thus, the dividend from Real Estate Investment Trust (“REIT”) is more predictable compared to normal shares, because a REIT must distribute at least 90% of its taxable income to shareholders.

Pitfall No 3: Dividend Pay-out from Capital

Most investors do not read the fine print in the fact sheet before signing the agreement. Quite a number of mutual funds or unit trusts have the flexibility to pay dividend from capital when there is a need to. Such a dividend-paying practice is akin to you paying yourself dividend from your own bank account.

Nowadays, there are many advertisements promoting various investment products which give high dividends to generate passive income for your retirement planning. However, it is very important to pay attention to the above 3 dividend traps before you invest your hard-earned money. Ensure that you consider the above 3 factors, ask questions and get a satisfactory answer before signing any agreement. Alternatively, get a qualified and experienced investment advisor’s help in building your investment portfolio to minimise costly mistakes that may plague you later on.

 

Kenny Loh is a Senior Consultant at Financial Alliance, the largest Independent Financial Advisor in Singapore. He has won 4 Awards in 2017, Financial Alliance Quality Class Merit Award, Top 5 Investment Asset Under Advice (AUA) Award, Rookie Consultant of the Year Award and Best Practice Consultant Award. Visit his personal profile here:https://fa.com.sg/kennyloh/

China Technology Stocks Reviews (11 Feb 2019)

By Soh YJ

 

KWEB is the china technology ETF that consists of the majority of internet technology stocks that is traded in US Exchange. The china technology had fallen 47% since Jan 2018. Current resistance is at $45.

 

KWEB Month candlestick

KWEB daily candlestick

 

 

Other indicators on KWEB

Simple Moving Averages: 20 > 50 SMA, 50 < 150 SMA. Mild Bull.

MACD: Above the 0 line but flattening. Mild Bull.

Force Index: Above 0 line. Positive buying volume, but sloping down. Mild Bull.

 

Top 3 Holdings of KWEB (08 Feb 2019)

Ticker YTD 1 WK 1 MTH 3 MTH 6 MTH 1 YR 2 YR 5 YR
KWEB 0.91 -1.50 6.18 4.90 -19.22 -26.09 8.10 22.70
0700.HK -0.58 0.23 5.49 23.78 -7.25 -15.17 62.87 215.04
BABA 0.24 0.22 10.16 15.54 -5.55 -5.27 66.49 78.25
BIDU -0.98 -3.12 -1.96 -7.54 -22.73 -21.22 -8.25 1.44

Performance in %

Ticker Last close price

08 Feb 2019

Immediate Support Immediate Resistance 50 / 150 SMA 20 / 50 SMA
KWEB 43.25 42.42 45 41.13 / 46.3 42.01 / 41.13
0700.HK 345.60 337 376 321.05 / 326.00 336.86 / 321.05
BABA 167.36 164.50 170.84 151.91 / 160.71 160.10 / 151.91
BIDU 169.90 165.00 170.01 / 202.18 168.51 / 170.01

 

Opinions

Some of the china technological stocks are trending up since January 2019 and the 20 /50 SMA show mild bullish. In addition, the MACD have broken up the 0 line for the first time since early 2018. It may be an reversal for the china technology stock, but investors may exercise caution as the 50 / 150 SMA remain bearish.

Singapore REIT Fundamental Analysis Comparison Table – 4 Feb 2019

Technical Analysis of FTSE ST REIT Index (FSTAS8670)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) had a huge rally last month from 777.45  to 832.03 (+7.00%) as compared to last post on Singapore REIT Fundamental Comparison Table on Jan 1, 2019.

The REIT index broke out from an down trend channel and critical resistance at 800, and reversed to an uptrend with spike in volume just in 1 month! This bull’s move was fast and furious! Most investors were not able to capture this large bullish move if they were not watching the stock market every day.

Based on the current chart pattern and trend analysis, the trend for Singapore REIT direction is UP!  There is a chance for Singapore REIT index to test the immediate resistance at about 875 (the previous high in 2018) based on current market sentiment and bullish momentum. This represents another 5% upside potential before the REIT index can reach the new high. All eyes will be on whether the Singapore REIT can break the all time high at about 890 back in May 2016.

Immediate support at 820 followed by 800. If Singapore REIT index can stay above 800-820 support zone for the next few months, it is a high possibility that the bullish trend may continue to break new high. Bear in mind that Singapore REIT has one of the highest dividend yield compared to other stocks in Singapore and also other stock markets in the region.

 

 

Fundamental Analysis of 39 Singapore REITs

The following is the compilation of 39 REITs in Singapore as of Dec 2018 with colour coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio. This gives investors a quick glance of which REITs are attractive enough to have an in-depth analysis. There are currently 39 REITs in Singapore after VIVA Industrial Trust merged into ESR REIT.

  • Price/NAV increases from 0.93 to 1.01 (Singapore Overall REIT sector is at fair value now).
  • Distribution Yield decreases from 7.24%  to 6.72% (take note that this is lagging number). About 38.5% of Singapore REITs (15 out of 39) have Distribution Yield > 7%.
  • Gearing Ratio increase from 34.6% to 35%.  22 out of 39 have Gearing Ratio more than 35%. In general, Singapore REITs sector gearing ratio is healthy. Note: The limit of gearing ratio for REITs listed in Singapore Stock Exchange is 45%.
  • The most overvalue REIT is Parkway Life (Price/NAV = 1.54), followed by Keppel DC REIT (Price/NAV = 1.41), Mapletree Industrial Trust (Price/NAV = 1.36) and Ascendas REIT (Price/NAV = 1.33).
  • The most undervalue (base on NAV) is Fortune REIT (Price/NAV = 0.58), followed by Far East Hospitality Trust (Price/NAV = 0.76), OUE Comm REIT (Price/NAV = 0.73) and Sabana REIT (Price/NAV = 0.72).
  • The Highest Distribution Yield (TTM) is Lippo Mall Indonesia Retail Trust (10.37%), followed by Cromwell European REIT (9.85%), Sasseur REIT (9.43%), Keppel KBS US REIT (8.97%), SoilBuild BizREIT (8.73%), EC World REIT (8.43%) and Cache Logistic Trust (8.31%).
  • The Highest Gearing Ratio are ESR REIT (41.9%), Far East HTrust (40.3%) and OUE Comm REIT (39.3%), iREIT Global (39.1%) and Mapletree NAC Trust (39%)

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. To learn how to use the table and make investing decision, Sign up next REIT Investing Seminar here to learn how to choose a fundamentally strong REIT for long term investing for passive income generation.

 

 

  • 1 month increases from 1.64933% to 1.77009%
  • 3 month increases from 1.76808% to 1.88892%
  • 6 month increases from 1.88533% to 1.94080%
  • 12 month increases from 2.06702% to 2.12550%

Based on current probability of Fed Rate Monitor, the US interest rate may stay at 2.5% for 2019.

Please visit the following link to see the summary of 1st half 2019 Singapore REIT market outlook session, a private event organised for my REIT class students.

Singapore REIT Sector 1H 2019 Market Outlook

 

 

Summary

Fundamentally the whole Singapore REITs is at fair value now.  The sharp rally in Jan 2019 propelled the Price/NAV valuation from 0.93 (under value) to 1.01 (Fair value). The window of entry opportunity for big cap REIT is only 2 -3 months when I first highlighted in Nov 2018 post. The big cap REITs become more expensive again but there are still some value picks left in medium and small cap REITs.

Yield spread (reference to 10 year Singapore government bond (2.186%) has tightened from 5.19% to 4.53%.  DPU yield for a number of small and mid-cap REITs are still very attractive  (>8%) at the moment.  However, it is expected the next move would be on small and medium size REITs due to higher risk premium.

Technically, the REIT index is trading in a bullish uptrend but it is expected to have a short term pause before moving higher.

I congratulate those investors who ignore the negative news and instead focus on the fundamental of the REITs to start accumulating in Nov and Dec 2018. You guys should have made handsome return  (capital gain) in addition to the attractive dividend yield. I wish your Singapore REIT portfolio continue to do well in the new year!

Gong Xi Fa Cai!

 

See all other relevant  Singapore REITs blog posts here.

If you need an independent professional review on your current REIT portfolio and need any recommendation, you may engage me in the REIT portfolio Advisory. REITs Portfolio Advisory.  http://mystocksinvesting.com/course/private-portfolio-review/