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Get dividends while preserving or growing capital.

Tuesday, July 12, 2016

Hi AK,

I'm new to your blog.

In searching for passive income in the past it was all about property and I never really considered REITS, stocks or funds in general. However I'm slowing accumulating these instruments in recent years to both diversify and bolster my passive income stream.

Too many investment and UT performance reports assume you will keep reinvesting dividends to take advantage of compounding and show wonderful returns. Unfortunately for retirees who cannot afford to roll their dividends back to their investments these numbers do not hold true.

REITS often make cash calls and one can see even the holdings that you've mention like AIMS, LMIR, Cache, Sebana over the past 3 years have lost capital for their investors (assuming you don't reinvest).

If you look at income-focused UT reports purely on a NAV basis most head south. I've seen advice by other investors that say we should look for even higher returns, spend a portion of that and reinvest the rest (eg, get a 10% dividend, spend 8% and reinvest the rest) but that also usually entails taking on much higher risk. Another talks about a hybrid between income and value & growth investing.

So if you're an investor starting out today that needs dividends as income but wants to preserve or grow his capital you're really in a hard place.

How would you advice someone in this situation?


Hi V,

Welcome to ASSI. :)

If we entered at a high price, it is unlikely that we are going to do well. It is not just REITs but the same with everything else, including ETFs.

If we want to invest in REITs, for example, it would be more meaningful to compare within the REITs sector to see which ones have performed better. Why did I choose to stay significantly invested in AIMS AMP Capital Industrial REITs instead of Sabana REIT, for example?

In the current day environment, if we want to preserve our capital (i.e. zero risk and volatility) and yet want to receive income, investment grade bonds or fixed deposits are the best bets. Even so, the risk is not zero.

Grow our capital (and I take this to mean appreciating prices) and yet want some income? I am sure there isn't anything that can provide such certainty although if we have a very long term investment horizon, the chances will improve if we invest in a basket of well run companies that pay dividends.

Best wishes,


redponza said...

I am assuming V is a conservative investor by reading his email.

A few comments:
-no investment is bullet proof. Even bonds will fluctuate in price.
-as an investor for income, the focus should be on per unit income stability (ie DPU for REIT) and per unit income growth potential.
-cash calls are not problem if the DPU can grow
-for REIT, income stability can be obtained through resilient property type (ie retail more resilient than hotel), low end property (ie shops for mass more resilient than high end mall), low gearing, no forex exposure
-REIT valuation has been more reasonable in 2016 than in 2014, 2015
-buying in separate batches (with each additional batches in lower prices) may lower risk if the DPU can be maintained

AK71 said...

Hi redponza,

Thanks for the very thoughtful contribution. ;)

AK71 said...

What about Cache? Is the current price not attractive for you to add?

I do have a relatively small investment in Cache Logistics Trust. The management has not impressed me like AIMS AMP Capital Industrial REIT's. Many share placements for acquisitions and we didn't see any increase in DPU.

Cache Logistics Trust and AIMS AMP Capital Industrial REIT have similar assets as both have logistics warehouse properties. However, the former is more a pure logistics warehouse owner while less than half of the latter's rental income is from logistics warehouse properties and, thus, has less concentration risk.

AIMS AMP Capital Industrial REIT also has interests in business parks, one of which is in Singapore. Business park ownership is a reason why I like Soilbuild REIT too.

If I were to choose, there are also other reasons to like AIMS AMP Capital Industrial REIT more, such as a stronger balance sheet and also the fact that it is now trading at a bigger discount to its NAV.

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