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FY2017 passive income from non-REITs (Part 3).

Thursday, December 28, 2017

If you have not read the 2 earlier parts, read them HERE (PART 1) and HERE (PART 2).

To continue from Part 2, in my blog on SingTel earlier in the year, I said that in my retirement, missing a regular earned income, I should be less adventurous and that I should seek greater stability when it comes to passive income generation.

In other words, I should be less speculative and should not leave too much to chance.

Consistent with this desire for a higher level of stability, I decided to reduce my investment in Accordia Golf Trust (AGT) in 4Q 2017 by more than half and to again increase my investment in SingTel.

I will say that this was not a very easy decision emotionally because, overall, with all the dividends received and with some capital gain to boot, AGT has been a pretty good investment for me.

Hesitating for a moment, I had to remind myself that to be consistent with my aim for greater stability in passive income generation, it was a sensible thing to do.

I know there are people who say to avoid AGT at all cost but regular readers know that I like to think that all investments are good at the right price.

This also brings to mind what Warren Buffett said before:

I don't always do a good job of this but with AGT, maybe, I did.

So, you see, ComfortDelgro was not the only stock which I found attractively priced in 4Q 2017 as I also built a larger investment in SingTel.

SingTel is a more valuable company than it was in 2015 and paying a price similar to or lower than what I paid back then to increase my investment in the business now seems like a good deal to me.

Compared to Starhub which I have a very much smaller investment in, SingTel has a much stronger balance sheet and also more resilient earnings.

While Starhub's DPS could suffer another cut after already reducing from 20c to 16c, SingTel is probably able to sustain their current payout as they have been paying out less than 75% of their earnings as dividends.

With this in mind, when SingTel's price plunged after going XD, I bought more and would probably add to my investment if there should be another significant decline in price.

Everything else being equal, the decision to buy more SingTel rather than Starhub on price weakness really isn't a very difficult one.

Coming up next is the last blog of the year and that would complete the update on my FY2017 passive income from non-REITs.

Read Part 4: HERE.

Related posts:

1. Reduced Accordia Golf Trust.
2. SingTel analysis.


AK71 said...

According to DBS, Singtel is now in a position to invest $1 billion in growth companies without taking on too much debt.

In the next five years, Singtel’s growth business (ICT and digital) is expected to make up 40 percent of its revenue, from the current 25 percent.

Furthermore, Singtel is at a valuation discount. Its core telco and digital business is trading at just 5.6 times FY18F EV/EBITDA compared to its peers.

By similar metric, M1 is trading at about 7 times, Starhub is at about 9 times while regional peers average about 7.5 times.

This was culminated by Singtel’s flat share price over the last three years while regional associates saw a 35 percent rise in their valuations.

DBS notes that this could be due to mounting losses in the digital businesses, resulting in a lack of positive sentiments.

However, with digital advertising arm Amobee achieving an earlier-than-expected positive EBITDA in 2Q18, DBS expects the deep valuation gap between Singtel and its peers would close as investors accumulate Singtel at a discount.


Destiny said...

Hi AK,

Just to check if you are aware of any dividend payment disruptions from RHT?
Normally they have a payment in Dec.
Not sure we will be getting it this time.


redponza said...

With a yield just shy of 5% and a not particular high growth in DPS, I find the yield of Singtel a bit lower than my taste...

If I am buying at 5% yield, I am expecting a DPS growth of 5-7% per year...

AK71 said...

Hi Destiny,

Pending outcome of the sale of its assets, RHT will not be making any income distributions.

Will just have to wait and see.

AK71 said...

Hi redponz,

Similar to CDG, I look at SingTel as an equity bond.

I don't expect a high growth in DPS.

However, you have to bear in mind that SingTel pays out less than 75% of its EPS unlike REITs which pay out 100% of their cash flow and often more than 100% of their EPS.

With your preference for investing in REITs (if I remember correctly), this is an important point to note in order to make an apple with apple comparison.

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