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$50k in annual passive income: Year end status.

Sunday, November 28, 2010

The last time I wrote about my attempt to achieve an annual passive income of at least $50k was on 5 Sep when I concluded that "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." Read blog post here.

For quite some time now, my focus has been on my top three investments when I talk about building a reliable stream of passive income from the stock market.  They are Saizen REIT, AIMS AMP Capital Industrial REIT and LMIR.

One of my friends told me that this is inaccurate since I do not include dividends received from my other investments in the stock market such as First REIT, Suntec REIT and SPH. I must admit that I have not been fastidious that way. However, my investments in other counters are so dwarfed by my top three investments that, for the sake of simplicity, I have excluded them. Also, funds from the complete divestment of CitySpring Infrastructure Trust and Cambridge Industrial Trust as well as the privatisation of Hyflux Water Trust have largely been redeployed to AIMS AMP Capital Industrial REIT and Saizen REIT.

So, for this blog post, again, I will just focus on my top three investments to see if I have managed to hit the said target. I don't think we need to wait till December to see how things will turn out since both LMIR and AIMS AMP Capital Industrial REIT have declared their final distributions for the year.

Saizen REIT

Saizen REIT's next income distribution is in March 2011. I overlooked the fact that this REIT pays half-yearly. So, without any contribution from Saizen REIT in December, I would probably not be able to hit the $50k target this year.

Also, my estimate of an annualised 1.6c DPU for Saizen REIT was somewhat optimistic earlier in Sep and it was partly premised on the successful re-financing of YK Shintoku. A more realistic annualised DPU is probably about 1.2c if YK Shintoku's loan was refinanced successfully sooner than later. This is after learning at the AGM that continual divestment of properties in YK Shintoku is necessary in order for refinancing to be viewed more favourably by potential lenders. For me, this means a reduction of 25% in estimated passive income from this investment.

Needless to say, such a reduction is not helpful towards achieving the annual passive income target I have set but in absolute dollar terms, I still expect this REIT to contribute a lion's share of my passive income for 2011.

Read my comments here.

AIMS AMP Capital Industrial REIT

This REIT had a successful rights issue recently which made its existing unitholders somewhat richer. I was very pleased with the rights issue and I have not sold any of my rights units exercised at 15.5c as they will enjoy a yield of 13.4% in 2011 when the annualised DPU of 2.08c kicks in. Of course, trading at 22.5c a unit now, I have a handsome 45% capital gain (on paper) for these rights units as well.

However, the last income distribution came in weaker at DPU of 0.3968c. In my blog post of 29 Oct, I said, "This is because of the issue of 513.3 million rights units on 14 October 2010 and 7.2 million units to the Manager on 19 October 2010 for payment of the acquisition fee in relation to the acquisition of 27 Penjuru Lane. Distributable income from 27 Penjuru Lane would be included in the next distribution, not this one, since the acquisition was done in 3Q FY2011 and not in 2Q FY2011."  Read blog post here.

Of course, this does not change the fact that the lower DPU this time round (payable in December) is not going to help me hit my passive income target this year.


LMIR

Although I am still somewhat disappointed with the management, this REIT is a stable passive income generator. Their latest DPU of 1.09c is marginally higher than the previous quarter's 1.04c.  This is largely in line with my expectations, that "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." Read blog post here.

Obviously, at a more conservative estimate of 4c DPU per annum, this is 20% lesser than the 5c DPU I was expecting at the start of the year.

So, based purely on these three investments, I have come up short this year with regards to my annual passive income target in the stock market.

Important development:

Recently, I have been buying more units of First REIT with a view that their recently announced acquisitions and rights issue are attractive propositions which would provide a distribution yield of 9% in 2011. Including the rights which I am entitled to and which I fully intend to accept and pay for, First REIT would rival LMIR as my third largest investment in the stock market.

So, from 1 Jan 2011, I will include dividends collected from First REIT in my calculations towards the target of $50k in annual passive income. I will continue to share my results here in my blog. Wish me luck.

Related posts:
$50k in annual passive income.
First REIT: Rights issue.

44 comments:

WK said...

Sifu, :)

I wonder how much u put in to achieve the 50k passive income annually?

AK71 said...

Hi WK,

Oh, the sums are quite easy. If we have a yield of 10%, to obtain $50k in passive income, we would need to invest $500k.

If the average yield on investment declines to 8%, then, we would need $625k invested. :)

Anonymous said...

Hi AK,
Is there a guideline in this blog for REIT invest ? As i not so familar in REIT. Manage to get Cache IPO during the launch.That the first Reit i brought my incident without any study.

Thank.

TN

Anonymous said...

HI AK71,

Congratulation to you for getting dividend > 50K.
I managed almost 48k when I was fully invested.
Ha! Ha!
Actually my portfolio was "locked-in" by the super bear market then.
Now I managed only about 35k. for this year.
I have sold about 30% of my portfolio.

NB:

Do you remember why I said, "You are rich...
Now you cannot say, "I am not rich".
Lawrence

Anonymous said...

Wish you luck, AK.

SnOOpy168

AK71 said...

Hi TN,

Cache Logistics Trust is a good investment, I believe. It has been trading above the IPO price so far. Have you read this blog post?

Cache Logistics Trust: Low gearing.

You might also want to read this blog post:

High yields: Successes, failures and the in betweens.

WK said...

wow.. tats a big sum to pump in a yr huh...

keep it up dude...

AK71 said...

Hi Lawrence,

Rich is a relative concept. ;)

By your definition, both you and I are rich but I believe I am just comfortable, not rich.

Anyway, thanks for your well wishes. :)

AK71 said...

Hi SnOOpy168,

Thanks for the well wishes. :)

AK71 said...

Hi WK,

I did not pump in all the money in one year. It took many years to build up the capital for investment. Takes time. :)

You might want to read this blog post:

Seven steps to creating passive income from the stock market.

Zelphon said...

Hi AK,

I am really impressed !!!

May I ask how old are you?

I am currently 29 and my combined assets is only $110k...

I am an engineer in semicon industry and I really do wonder what my future holds and whether can I achieve financial freedom in this lifetime..

Looking at the skyrocketing living cost and the stagnant pay in engineering, it is pretty disheartening...

Haizzzz...
Anyway, enough of my ranting...
I look forward to your blog posting everyday...
Hope that I can learn something from your wisdom over the ages..

=)

AK71 said...

Hi Zelphon,

I am 39 next month. Buy me a present? ;p

Semi-conductor industry? What is your opinion of ASTI? Vested. ;)

ASTI: A doubling of share price in time?

Life in Singapore is not easy, for sure, and wealth building takes time for most of us. There is no short cut. Soldier on. :)

You might find this blog post inspirational:

Do you want to be richer?

I am glad you enjoy my blog and I hope to hear from you again soon. :)

Anonymous said...

HI AK 71,

Of course, rich is a relative concept.
After one's own images of physical and "mental" needs are met, any more wealth accumulated is secondary.
It will not bring more "happiness".
But on the other-hand if you are blessed with the "gift of investing in the market", you shall & will have happiness by sharing your gift and perhaps some charity to the poor and less able.
If I sound like a priest, it's because I am taught to remember "the poor is always with us". And also the less able.
I beg your pardon.
Lawrence.

AK71 said...

Hi Lawrence,

Yes, charity is something I strongly believe in and there are a few organisations which I make donations to regularly. I see helping the less fortunate as an important social responsibility.

You are too modest about being less able since you were able to obtain almost $48k in dividends even during the recent bear market. :)

Thanks for sharing your insights.

Sanye said...

Hi AK71,

Congratulation for the achievement. I am sure you will achieve your goal next year!

I hope to achieve 50K dividend next year too. Managed to reach S$46K this year. :)

Anonymous said...

Hi AK71
You are one of the best blogger around. Keep it up.
Some bloggers hibernate certain time of the year. You seem to be awake 24/7

Cheers

CSTAN

AK71 said...

Hi Sanye,

$46K in annual passive income is no mean feat! Congratulations!

Yes, I am hopeful that my target annual passive income from the stock market could be attained in 2011. Thanks. :)

AK71 said...

Hi CSTAN,

Thank you for the encouragement. There will be times when I go into "hibernation" too, I am sure, and it happened for a few days in January earlier this year. I was taking a cruise and a holiday in Phuket then. So, "hibernation" will happen from time to time. Fair warning? ;)

Anonymous said...

HI AK71,

You have missed the point when I said
I managed 48K dividend in the Bear Market (pai seh) it was because my investment fund was fully invested.
From following your posts, I know your dividend yield is so much better than mine.
I wish I have your dividend yield.
I am trying to learn from you how to improve my dividend yield.
(PAI SEH)
Lawrence

AK71 said...

Hi Lawrence,

So, you managed $48k in dividends being in low yielding investments? This means that your capital must be a few times more than mine! You are truly a rich man. ;)

You must have worked hard and smart to amass such a sizeable capital. It is now a matter of working your capital harder.

I am glad to share what I know. Of course, if you think I have made mistakes, please let me know. I am here to learn too. :)

Anonymous said...

Hope one day i can reach similar like u. 50K dividend per year.You must take quite a few years to build that.:)

TN

Anonymous said...

Hi AK71,

I have been investing since 1987 at the age of 40.
And not only I use my capital, sometimes I use my wife's capital too.
So you see you are only going 40, already so successful.
Therefore definitely, by the time you reach my age you will be so much better than most people.
And I, I could see if i am still around, I will be a "toothless cat"
HA! HA!
But everyone has to be, only one fine day.
Anyway, shalom to you.
Lawrence.

AK71 said...

Hi TN,

Yup, it took me many years. It is always the hardest in the beginning, like with almost everything else, but over the years as the dividends from investments were re-invested, it got easier.

I made quite a few mistakes along the way and some were total losses but, thank goodness, they were small positions. I identified the reasons for the mistakes and all have a common theme: complacency. I hope not to make similar mistakes again.

I do not seem to be very good at making fast money. Almost everytime I try, I end up losing money. Haha.. So, it is get rich slow for me instead of get rich quick. :)

AK71 said...

Hi Lawrence,

Wow, you are only one year younger than my dad. I pay my respects to you, my senior. :)

So, you have been investing in the stock market for 23 years. That's a long time.

I look forward to you sharing more of your experience with us here. :)

Anonymous said...

HI AK7,

Every one's life experience is different.
But one Quote is very real and apply to everyone regardless of who you are.
That is:
"Good judgement comes from experience.
Experience comes from bad judgement.
Keep it up.
Cheers & Blessings
Lawrence

AK71 said...

Hi Lawrence,

Thanks for sharing the quote. It rings true. I know I have had more than my fair share of bad judgement. ;)

Zelphon said...

Hi AK,

Well, all I can say there is a slowdown in semicon..

All depends on whether tablet can drive high volume..

I am looking at ASTI too..

But then I am already vested in Ellipsiz.. No pt putting my eggs in another semicon related company..

Check out Ellipsiz and its history..

Used to trade at SGD 1.00 at its peak..

Now trading below NAV..

AK71 said...

Hi Zelphon,

Thanks for sharing your insights. I am not in tune with the Semi Con industry but since you say there is a slowdown, I should turn cautious.

I am also considering getting a tablet: either the Apple or the Samsung. I know many others are also thinking of getting one. So, the demand should be strong in the next few months, at least, I guess. :)

Zelphon said...

Hi AK,

Personally, I am using apple Ipad...

Well, tablet is just a hype...

I seldom use my ipad ever since I have gotten hold of it..

But it is definitely useful when you are on the move...

I have tried out that samsund ipad... and I think apple is better..

=)

AK71 said...

Hi Zelphon,

I like the iPad too. The screen is bigger than Samsung's. :)

I am waiting for some telco to bundle the iPad with a dataplan like what is being done for Samsung. Hopefully, that will make the iPad more affordable. Do you think it would happen?

Zelphon said...

Hi AK,

Isn't there bundle data plan with apple ipad already?

Anyway, the data plan for ipad is ridiculously overpriced.

Most people who owns iphone with data plan will just buy a wireless only ipad... jailbreak both of them and tether ipad to the iphone so that the iphone can become a mobile wireless hotspot whereby the ipad can use to surf internet..

Much cheaper that way...

AK71 said...

Hi Zelphon,

I asked but iPads are not bundled with dataplans yet. So, most of my friends bought the iPad with 3G capability and pay $20+ per month for a dataplan from M1, for example.

A friend told me to wait for iPads to be bundled with dataplans because that would probably see the price of the iPad a lot lower. Makes sense, I guess. It works for iPhones. ;)

I don't wanna jailbreak anything because a friend who is in the IT profession told me I could have a problem with warranty if I do that. Anyway, I am not very savvy when it comes to IT. I try not to mod anything. :)

left_ray said...

You still have faith in LMIR? I am getting tired of it.

Your portfolio is majority REITS where I am trying to keep it down to 50%, but shipping trust, infrastructure, and other business trust are just not performing like REITS. Really bad! I think I should learn from you.

AK71 said...

Hi left_ray,

LMIR might not be delivering a stellar performance but I doubt it could get much worse. It is a stable passive income generator and reasonably safe. :)

In a recovering economy with plenty of liquidity and low interest rates, businesses and real estate will do well. Demand will improve. Landlords should do well. We cannot go very wrong with most REITs in such an environment. That's the way I see it. :)

Anonymous said...

Provided that your share are not beaten down by current turmoil. If not, then what is the point of 50K dividend if your portfolio are down by 30%!!!

So your 600K are now worth 400K, you lose 200K, so what is so good abt that 50K div.

You call that passive incoime!!!

victor

Anonymous said...

You all have achance to buy penny on the dollar soon.

Eurozone is a done deal. Sell first and buy when the average yield of reit is 20%, Like 2009.

That was what i did. But i have liquadated all vestment in August this year.

Wish me another round of good luck.

victortan

AK71 said...

Hi Victor,

Technically, it is passive income. It is different from capital gain or capital loss.

If someone bought a condo for $1m and rents it out for $4k a month but in a market correction, the condo's value goes down 20%, is the rent which he continues to collect passive income? ;)

AK71 said...

Hi Victor,

You would belong to the camp which believes that the eurozone is a basket case. I know people in that camp and they are in 100% cash now.

Of course, there are also people who believe that the eurozone will not crash and burn. They believe that we will see very low growth in Asia and that it would not be as bad as the last crisis.

Personally, I will remain partially investd. I like to be in a position which will allow me to benefit whichever way the wind blows. ;)

Unknown said...

Hi AK71,

My understanding of passive income from shares is income stemmed from the dividend or distribution.

What about capital book gain/loss from the stock itself?

For example, if I purchased Stock A cost at $5 per share, received $0.50 annual income and the stock is worth $4 per share at year end.

This means that my passive income is $0.50.
However, my asset now would be only $4.50 ( book value at year end + dividend ), which is a lost and not gain. How should we best keep track of our stocks to know if we are actually making or losing money?

Thank you.
tt

AK71 said...

Hi tt,

You have to first understand your motivations: are you investing for income or for capital gains?

If you are investing for income, then, the thing to do is to get in at a fair price and stay put. If price should decline, then, you should consider increasing your exposure since it would mean that you are able to get higher yields, provided that the business fundamentals are intact.

If you are investing for capital gains, then, you would be more bothered with "losing" money.

Of course, one could be a hybrid and invest for income and capital gain. You decide.

An example, I have been vested in AIMS AMP Capital Industrial REIT for a long time. Primarily, my investment is for income. However, I also traded units of the REIT a bit to make more pocket money as its unit price went up and down. Overall, I have collected quite a bit of income distributions, holding on to most of my investment through ups and downs which really didn't bother me much. Today, the unit price is higher than ever. To me, this is just a bonus. ;)

tt said...

Thanks for recommending the TA and FA books as well as the free shipping site =)

Do you mind sharing how you keep tracking/calculate your investments? Do you average down? It gets very confusing ( to me ) after a few years of passive ad-hoc buying to really know how i've been doing.

As everyone's portfolio size is very different, would you please consider sharing your annual income as a % of their jan 1 value instead of numbers in the future?

tt

AK71 said...

Hi tt,

I hope you have fun reading those books. ;)

How do I track my performance?

I buy when I think it makes sense to. I sell when I think it makes sense to. Decisions, good and bad, are made based on basic FA and TA.

When I sell, I would record the gains or losses, as the case might be. When I receive dividends, I would record as well. That is all I do.

What is the total value of my portfolio? I don't know exactly. So, I cannot tell you what is the yield on my portfolio as a whole... :(

tt said...

thank you =)

I keep track of the cost of my stocks ( if i get a div, the cost will go down. if i make a bad trade, the price would go up and vice versa ). It made sense to me at first, but after a couple of years.. the cost becomes a tad meaningless to measure how i've been doing.

perhaps i should just chill and concentrate on
1) % of dividend yield. mine was about 5% for 2011
2) overall portfolio increase instead of decrease ( this one has been difficult for the last couple of years as the STI falls )

thank you! please don't stop blogging. it's very inspirational to hear of others making passive money consistently. i also like one post where u equaled dividends gained to getting a bonus at work. I think getting an extra month bonus from dividends requires less work than getting an extra month from my company :) However, getting an extra month from work performance is risk free!

AK71 said...

Hi tt,

5% yield for 2011 is not bad at all. Congratulations! :)

Yes, I remember that post. It was before I decided to share my passive income in absolute dollar terms. Till now, I still feel that it was a more meaningful blog post compared to the ones which revealed how much in dollar terms I received.

I am posting the link here for easy reference:

Create more passive income with limited capital.

Wow, this blog post is almost two years old! Time flies...

I continue to blog but the frequency is reduced. I would probably be running the risk of repeating myself as I run out of ideas. So, less is better. ;p

Instead of forcing myself to blog more regularly, I blog only when I feel like it or when I feel it is timely to say something (if I have the time). ;)

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