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A minimum of $50k in annual passive income.

Sunday, September 5, 2010

Anyone who has been reading my blog would know that I seek to build a strong stream of passive income through my investments in the stock market. On 29 May 2010, more than three months ago, I mentioned that "between LMIR and AIMS AMP Capital Industrial REIT, the annualised income distributions I receive could be as much as 4x my monthly salary".  In aggregate, this has not changed.  However, I have made some changes in allocation and shifted funds from LMIR to AIMS AMP Capital Industrial REIT.  This is because I am a little disappointed with the former and at the same time, I am feeling more optimistic about the latter.

In my post of 29 May 2010, I also said that "things should get better from here as from the month of September, income distribution from Saizen REIT would add to my passive income stream. I might just stop trading the market and sit back, relax and let the passive income stream in.  Of course, it remains to be seen if my calculations as to Saizen REIT's potential income distribution would come to pass."

I was pretty confident that things would go the way I think they would but we can never be too sure of anything. As things turned out, happily, Saizen REIT's results and DPU were better than expected.  It seems that their CEO is much more astute compared to LMIR's and did not engage in any 100% currency hedging.  To recapt, "LMIR announced a DPU of 1.04c payable on 27 August 2010.  This is lower than the 1.2c paid in the last quarter. This is due to a higher realised loss on the foreign exchange forward contract."

I did some back of the envelope calculations as to the passive income I would be receiving from my investments in Saizen REIT, AIMS AMP Capital Industrial REIT and LMIR in future:

Assuming that all of Saizen REIT's warrants are converted to regular units and assuming that YK Shintoku's CMBS is successfully refinanced with a conventional bank loan with an interest rate of about 4%, I estimate the DPU to be about 0.4c per quarter or 1.6c per annum from December 2010.

As for AIMS AMP Capital Industrial REIT, with the impending rights issue, I would probably increase my investment in the REIT by at least a third and enjoy a higher yield at the same time.  This would increase the amount of passive income I receive from this REIT from December 2010.  DPU is estimated at 0.52c per quarter or 2.08c per annum.

For LMIR, although I believe in the strength of the Indonesian economy and the strength of its currency, the management's decision to continue using foreign exchange forward contracts is likely to limit any DPU growth.  In fact, it has led to a DPU reduction in S$ terms so far as the Rupiah strengthened against the S$.  However, I expect the S$ to appreciate more robustly in future and it is unlikely that the DPU would reduce much more.  Conservatively, I estimate the DPU to be 1c per quarter or 4c per year from December 2010.

With Saizen REIT's contribution, I would probably exceed the target I have set for myself which is "to create a minimum of $50k in annual passive income from investments in the stock market alone."  I shared this aim here in my blog on 27 Feb 2010, more than half a year ago. Like with everything, however, this needs confirmation. Let us see what happens in December 2010.

Related posts:
Create more passive income with limited capital.
LMIR: DPU reduced 20%.
AIMS AMP Capital Industrial REIT: Steady performance.
Saizen REIT: Better than expected DPU.
Seven steps to creating passive income from the stock market.

44 comments:

Drizzt said...

omg. how big is your portfolio size!

Createwealth8888 said...

Congratulations! You may have reached your final investing goals post and it is time to stop trading the market and sit back, relax and let the passive income stream in.

In our investing journey, there will be two distinct investing paths - Growth and Income.

The Growth path is for us to build up wealth and the Income path is for us to preserve wealth so it is very important for us to know where we are now and choose the right strategy to meet the investing goals.

Giggs said...

Hi ak71, I've been following your comments and analysis for AIMS ampi reit. With the impending rights issue, would you recommend someone who's not vested yet to buy-in now and attain e rights, or to wait for post-rights issue to buy-in?

AK71 said...

Hi Drizzt,

Forgive me that I do not feel comfortable revealing the value of my portfolio.

It took me many years of hard work as well as some daring investments in the bear market last year, some of these investments I shared here in my blog, to build this up. :)

AK71 said...

Hi CW,

Thank you. :)

I read your post on this subject and was inspired enough to write my own post, offering my take on the matter.

http://singaporeanstocksinvestor.blogspot.com/2010/09/building-and-preserving-our-wealth.html

I am not quite sure that I agree that the income path, as you put it, is just for preserving wealth. If we are able to get a yield much higher than inflation and if we save much of this passive income that is generated, we are still growing our wealth.

Having said my piece, I am sure there is room for differing views on the subject. Whatever works. :)

AK71 said...

Hi Giggs,

I believe your question is similar to what another reader, Paul, asked in one of my earlier blog posts.

Not to repeat myself, please go to the following post and see the comments section for Paul's questions and my replies:

http://singaporeanstocksinvestor.blogspot.com/2010/09/aims-amp-capital-industrial-reit-sell.html

Thanks and do visit often. :)

bummy said...

Congrat's AK, your hard work has paid off and i'm sure you hit your target before year end. 50k dividends is not a level i will hit anytime soon but hopefully by 2020. thanks for the inspiration.

AK71 said...

Hi bummy,

There are so many ways to build our wealth. Each one of us have to discover the way which we are best with. I believe you might have found yours. ;)

You are always very encouraging. Thank you for your friendship and for tolerating my ways. :)

Anonymous said...

Thanks for sharing.

I really enjoyed reading your blogs (and often gets confused at the charts). Your goal is very similar to mine. Except that I had only started early this year, and I am almost 40 already and only have a full paid 3NG flat to my name.

Was blinded early by the trust in Unit Trust and depreciating assets like superbikes and car.

More details on the REITs and business trust please.

Jimmy

AK71 said...

Hi Jimmy,

I am glad you enjoy my blog. :) To begin understanding charts, you would have to learn about Technical Analysis (TA). The DUMMIES series is easy to understand. Two of the books I have read in this series could be found in the box titled "Books I've read" near the top of my blog. It's in one of the right sidebars.

At almost 40, you still have another 15 years before you hit 55. I believe that it is not too late to start now.

All of us have our moments of weakness. I spent quite a bit of money this year as well. We must not forget how to enjoy life, right? Everything in moderation though. :)

I have blogged extensively on REITs and business trusts. If you do a search at the top of my blog, you should find quite a bit of information to start with. For sure, as and when I have more to share, I will be blogging. ;)

Good luck on your journey towards financial freedom and do visit often. :)

Chu Yeow said...

Wow congrats! Looks like you're all set now, have you thought of what to do with your day job?

I knew you were a big retail investor but I didn't realize your portfolio was so big. Do you mind sharing the kind of dividend yields you're getting from counters that contribute significantly?

Drizzt said...

hi ak its meant as a joke. i dun expect you to revealed it but congrats. wish i can reach 1/3 of that.

AK71 said...

Hi Chu Yeow,

Thanks. :)

I will continue working in my day job. I have obligations to so many people who have supported me for so many years in my current position. They still want me around. As long as I am still wanted, I guess I will just stick around. ;)

Well, in one blog post which talked about how we could create more passive income with limited capital, I highlighted a few REITs which could yield around 10% per annum:

AIMS AMP Capital Industrial REIT's DPU guidance ex-rights is 2.08c per annum. Price is now 22c. My cost prices: 20.5c to 22c. With the upcoming rights issue, I would have a sizeable number of units at a cost of only 15.5c.

Saizen REIT's DPU is expected to be about 1.6c per annum. Price is now 16c. My cost prices: 13c to 16c.

LMIR's DPU is expected to be about 4c per annum. Price is now 47c. My cost prices: 18c to 50c.

I am providing many of these numbers off the top of my head. Well, these are my top three investments.

I also own shares in quite a few other counters like SPH, ST Engineering, Suntec REIT, K-REIT, MIIF, HWT, First REIT.... They too contribute to my passive income stream from the stock market. :)

AK71 said...

Hi Drizzt,

Any unmarried person staying with parents who is making, say, S$5k a month in his day job could do this within 20 years or less, if he manages his money well. If he is hardworking enough and takes on secondary employment in his free time, even better. If he is lucky from time to time, great!

I don't know you well, surely, but from your blog, I have the impression that you are very intelligent and thrifty, both necessary attributes towards financial freedom. :)

Thanks for the comments and I look forward to hearing from you again soon. :)

Maketraffic said...

Hi AK,

Congrats to you reaching an important milestone! I am a loyal reader. I came across your blog from musicwhiz and la papillion blogs and have been a regular visitor since.

Keep up the good work! Your TA writing is simple and to the point, which is something i enjoy very much.

Just a question: Do you invest in US stocks?
Cheers!

Anonymous said...

Hi AK71,

You are our idol! Lol! Believe many of us have benefited from your selfless sharing of your knowledge on your blog. Thanks!

JT Geog

PS: Been promoting your blog to EP Geog (again).

Chu Yeow said...

Thanks for sharing, that's actually very helpful since it gives me a real life example of what a dividend-focused portfolio looks like. I've been wanting to switch out of my portfolio of mostly growth stocks and blue chips (mostly O&M, property) to high-dividend stocks like telecoms and REITs for awhile now since I feel the need to go more defensive the higher the STI gets to pre-recession levels.

I've never really considered most of the REITs you've been blogging about because at first glance I find them rather risky plays because of their relatively low liquidity and low prices (stigma of penny stocks). I did buy Saizen REIT and am confident that things have turned around, so I have you to thank for that :)

I'll go back and read your posts on AIMS and LMIR and read their quarterly earnings reports to judge for myself whether they are worth investing in.

Do you have anything to say on your other REIT investments? I personally feel more comfortable investing in "blue-chip" REITs like K-REIT despite their lower yields because I perceive them as safer bets, so I'd really like to hear your opinion on those.

Thanks for keeping a very educational blog - if you actually know of a SG investor who blogs as well as you do, please let me know.

AK71 said...

Hi Maketraffic,

Thank you for your encouraging comments and I hope you will continue to visit.

The Singapore stock market keeps me busy enough. No time for the US market. ;)

AK71 said...

Hi JT Geog,

Aiyoh, paiseh lah. I am happy if anyone takes away something useful from visiting my blog.

I hope EP Geog is healthy and doing well. We should meet up one Sunday in October when I have a bit more time. Will SMS you.

Thanks for being so generous with your praises. :)

AK71 said...

Hi Chu Yeow,

Between Telcos and REITs, Telcos are perceived to be more defensive. You might want to visit Drizzt's blog, Investment Moats, for information on Telcos. He is an expert on these.

As for thinking that some of the REITs I am invested in are risky at first glance, I am sure you are not the only one. Human beings like to be associated with pedigree. So, they are willing to pay a premium for REITs sponsored by big names. There really isn't anything wrong with that except I dislike paying a premium above NAV for REITs and I am not attracted to the lower yields.

So, am I saying that the REITs I am invested in have no risk. Surely, no. However, even REITs with a pedigree are not risk free. ;)

Earlier, I forgot to mention my latest purchase which is a business trust, K-Green Trust. I think this fits your requirement of being "Blue Chip" since its sponsor is Keppel Corp. ;)

http://singaporeanstocksinvestor.blogspot.com/2010/08/k-green-trust-possibly-stabilised.html

Thank you for the nice words of encouragement again. I have always enjoyed writing and a friend called me a "wordsmith" years ago. Blogging allows me to do what I enjoy most. I am growing older and I should write often to stay sharp. ;)

Chu Yeow said...

Thanks for replying (you reply to almost every comment, that's great :)).

I see what you mean about paying a premium for "pedigree". I'll be looking at adding a REIT (I'm looking at AIMS or First) to my portfolio in the next few months.

As for K-Green Trust, I've actually been eyeing it for awhile now and have been reading your K-Green posts. And yes, I feel quite comfortable investing in it because of it's Keppel Corp sponsor.

AK71 said...

Hi Chu Yeow,

Hey, no problem. Like I said before, I try to run this blog like how I would run a business. I know how it is like to send someone an email and not get any reply. Grrr.. ;)

According to Nick, First REIT might have to go with a rights issue to fund ambitious acquisitions. Personally, I would not discount that possibility. You could find 2 blog posts on First REIT which are contributed by Nick here in my blog. The paucity of information at this stage makes me hesitate to add to my position.

AIMS AMP Capital Industrial REIT should be sated after the pending proposed rights issue. They would be stronger than ever. There is greater stability in this REIT now.

K-Green Trust is, I believe, bullet proof. Zero gearing and a 7% yield plus a strong pedigree. The plus point is I am not even paying a premium for the pedigree. I'm vested at $1.11 (NAV at $1.12) and would buy more if price ever weakens by 5% or so.

left_ray said...

You may know someone for ages yet not know him at all or you may know someone for just couple days yet know him for ages.

PanzerGrenadier said...

Hi AK71

I am impressed and congratulate you on achieving or close to achieving your target of passive income of $50k p.a.!

That is my target too but I realise I need to develop a secondary income to help build up savings because supporting a family increases expenses tremendously! :-P

Of course, the fun of playing with my 2.5 year old daughter makes up for the investments in her! hahah...

Be well and prosper.

AK71 said...

Hi left_ray,

Very philosophical. Any reason for feeling so?

AK71 said...

Hi Panzer,

Yes, being single and staying with my parents until about three years ago help a lot in my ability to save money rapidly. Money in my CPF OA grew quite rapidly through the magic of compounding at 2.5% per annum too.

As for developing a secondary income, I was teaching part time and provided tuition services too. I still do some tutoring today. Of course, I have always had passive income from the stock market in the form of dividends as well. It adds up. :)

We choose the path we walk and ultimately, we have to be happy with the walk even if the path is not the most even one. I believe you have found joy in fatherhood and that is priceless. :)

Thanks for the congratulatory message and I look forward to hearing from you again. :)

left_ray said...

I always though you and Drizzt knew each other well since you and his style of investment are somewhat similar. So I was caught by surprise when you said, "I don't know you well, surely." Knowing someone depends on how you perceive a person. Investment wise, maybe you knew him better than some of his friends or relatives. Anyway, just a thought.

AK71 said...

Hi left_ray,

Oh, I see. You are a deep thinker. :)

Many financial bloggers are blogging anonymously and we might never actually get to know the person behind the blog.

What you have is a gem of a thought. Could well be expanded into a proper blog post. ;)

Sanye said...

Congrats AK71!

Coincidentally, I have set the 50K annual dividend income as my stock investment goal too. Well I am not quite there yet, still working hard....

Congratulation again.

AK71 said...

Hi Sanye,

I feel that we can be quite comfortable with $50k in annual passive income in Singapore. Well, I am still waiting to see if my estimates are right. Will definitely be blogging about it in the next few months. :)

Thanks for the congratulatory message and I wish you the best in your efforts too. :)

LYS said...

Hi there,

really enjoyed reading your post very much, I must say, after reading this post, I am inspired to set my own personal goals of achieving a comfortable level of passsive income as well.

But I would like to seek some clarification. Pardon my "financial illiterateness", but may I ask in order to reach that target of $50k per annum, we just need to reinvest the dividends we receive every payout or do we the investor also have to set aside a portion of his income every month in addition to this. And if this is so, at what quantum should we set aside and how long might it take. I think if you can blog a post using a hypothetical scenario(Assume $5k per month salary etc..), it would be more informative and clear for newbie investors like me to see how this goal can be realized.

Btw, I'm a newbie investor who is about to step into the working world soon. I am proud to say I have taken the first step and made my first ever purchase into FCOT reit!(not sure if it's the wisest of choices =S)

Looking forward to reading more of your postings. Great job!

YS

AK71 said...

Hi YS,

I am glad you find this post inspirational and to learn that you are embarking on your own journey towards passive income generation.

According to the Rule of 72, if we are getting a 10% yield and re-investing it every year (provided that everything else remains constant), we would get back our capital in 7.2 yrs. If we did not reinvest, we would get back our capital in 10 yrs. This is a very simplistic example to demonstrate the magic of compounding. I wrote about compounding in one of my latest posts titled "Do you want to be richer?":

http://singaporeanstocksinvestor.blogspot.com/2010/10/do-you-want-to-be-richer.html

Of course, unless we are retired, we would still be receiving a salary from regular employment. We would still be saving some amount of money and apportioning some of it for investing for income. It would speed up the process. I blogged about this in an earlier post "Seven steps to creating passive income from the stock market":

http://singaporeanstocksinvestor.blogspot.com/2010/02/seven-steps-to-creating-passive-income.html

In all my blog posts, I try to avoid giving specific numbers in an effort to impress upon readers the universality of my approach. Everyone's earning capacity is different but everyone can achieve a similar percentage return if using the same methods. I find this more meaningful

As for whether FCOT is the wisest of choices, I am sure you would have done some Fundamental Analysis (FA) on the REIT and decided that it is the one for you. Care to share your FA here with us?

Personally, I have a recent blog post on FCOT titled "FCOT, CCT and K-REIT". You might want to take a look:

http://singaporeanstocksinvestor.blogspot.com/2010/09/fcot-cct-and-k-reit.html

This was followed by another post comparing Office S-REITs with Industrial S-REITs:

http://singaporeanstocksinvestor.blogspot.com/2010/09/office-s-reits-vs-industrial-s-reits.html

Good luck on your journey. All of us need some of this, for sure.:)

YS said...

I am clearer now, thanks! Honestly, I don't think I've done any decent stock analysis of the FCOT(cos I'm really clueless as to how to do one yet). I just bought it mainly due to the high dividend yield and I think their buildings are of high quality. I definitely would have consider other reits but most have climbed sharply since the financial crisis. (missed the boat =( )

I also felt the price was low enough and would not go any lower given the positive outlook for office rental market in Asia Pacific.(I browsed recent JLL property market reports)

For me, I have strong belief that investing in various types of real estate is the best way to achieve my financial goals.(especially in land scare singapore)

And because I dont'have the kind of money to put down for a downpayment for my first property yet. I saw the next best alternative in reits as it allows poor ppl like me to 'enter the market.'

Yes, i will definitely read up on your reccomended postings.(tho it'll take time for a newbie like me to digest) Thanks!

AK71 said...

Hi YS,

Hey, no problem. We all need to start somewhere. ;)

I blogged about my personal journey as an investor and if you are interested, you could check it out, "Excuse me, are you an investor?":

http://singaporeanstocksinvestor.blogspot.com/2010/02/excuse-me-are-you-investor.html

Hope you enjoy it and do visit often. Oh yes, remember to visit my sponsors too. ;)

Anonymous said...

AK71,
Nice blog u share.:).I just start learning investment.Hope not to late as i had work quite awhile.Pick some tips from here.

TN

AK71 said...

Hi TN,

Thanks for the compliments. I am glad you found some useful information here and, no, it is not too late to learn. Do visit often. :)

Anonymous said...

u need investment amount of SGD 0.6k t0 0.90k ?

AK71 said...

Hi Anonymous,

I think you mean $0.6m to $0.9m. Yes, depending on the average yield on our investments, the amount invested would differ to achieve a passive income of $50k annually.

Could you leave your name or initials in future comments? Thanks. :)

Louis said...

Hi AK,

Have been following ur blog for sometime now. I'm vested in AIMS, Starhub, Cache, Suntec, Rickmers. Getting about $24k per year in passive income now.

I'm curious, how old are you to have reached $50k? 30+? 35+? 40+? 45+?

AK71 said...

Hi Louis,

I see you also believe in investing for income. :)

I am 39 years old next month. Buy me a present? ;)

oldmasterlim said...

Boss AK

I found ur blog recently while surfing for information on S-REITs. I find that it is one of the more intelligent blogs on the topic and appreciate ur balanced approach towards investing.

However, I must make a few comments on a few points which i believe are dangerous:

* You are heavily concentrated in just a few counters (Saizen, AMP etc). Any small company-specific problem that crops up can knock you back a lot and derail ur financial freedom plans by many years!

* Your portfolio appears heavily skewed towards the China/EM Growth theme. Any reversal of this theme would affect properties/rentals situated in China, HK, Spore and Aust quite severely.

* Comparing LMIR and Saizen, you favour the latter because they do not do currency hedging. But again if a big reversal in global risk appetite occurs, those high-risk currencies (IDR, AUD etc) will also suffer a big reversal, which hits both dividends and NAV in Singapore currency terms.

* Ur target of SGD50k per year - does that assume u consume the entire dividend yield? In that case even if the market is stable, ur capital will suffer shrinkage over time in real terms due to inflation. Many wealth HNWI assume a 2-2.5% p.a. withdrawal rate if you want capital to be stable. However, if you are willing to take a chance on drawing down capital during retirement, then a higher consumption rate is possible. However, make sure u have a solid financial plan when calculating that withdrawal rate!

I would suggest a bit more diversification, and also possibly to keep ur dividends in a cash account, and continue ur dayjob without consuming those divs. Then only reinvest those divs on a substantial market drop (e.g. benchmark to the May 2010 crisis). Alternatively, keeping a portion of ur investable assets (e.g. 25%) in cash and wait for a large drop in the market, to give urself some flexibility.

Please note that this is meant to be constructive criticism and I wish u guys all the best in ur quest to achieve financial freedom!

AK71 said...

Hi oldmasterlim,

Your comments are most valuable and I agree with you on all points. I believe that the following would allay your fears:

1. I still have my day job and it is unlikely that I would be allowed to leave for a few years more.

2. I have investments in other assets classes, not just the stock market.

3. I am not buying and holding. I believe that there is a time to buy and a time to sell.

4. Dividends received from my investments in the stock market are re-invested given the right circumstances. Otherwise, they are kept in my savings account. Dividends are typically not consumed as my expenses, routine and otherwise, are covered by income from my day job.

Why am I so confident about China and the Emerging Markets? Apart from the fact that I am a follower of Jim Rogers and Marc Faber, I believe that money will go where it is treated best.

With so much QE going on, the massive liquidity will seek higher returns. Best places to invest in would be in countries with strong currencies and strong economies. Add to these a nice dose of high yields, we are sitting right smack in the midst of it. The stars are aligned in our favour, so to speak.

It seems that you have read my blog posts in detail to come up with such a comprehensive list of concerns. I really appreciate it and would like to hear from you again. Thanks. :)

Anonymous said...

Hey AK

Just reviewed the stack of CDP annual statement for 2010. Found that I had collected $2,819.15 in dividends, so far. Thats for 2010. Plus the nice cap gains on AIMS & FR. Very acceptable & happy by me, esp that I had only started playing shares in Mar 10.

Seems like I will have to be more prudent to make it close to the goals of S$50k p.a or something similar.

May the Rabbit Year hops up our income stream. Many thanks for your blog and sharing of the information. Looking forward to your next blog series.

Huat ah....

SnOOpy168

AK71 said...

Hi SnOOpy168,

Your experience is testament that the strategy works.

The beauty of investing for income is that the strategy is a simple one and easily understood and implemented.

I am happy to share what I know and see more people enjoying reliable passive income for a more secure financial future. :)

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