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3Q 2018 passive income (non-REITs): APTT.

Tuesday, October 2, 2018

In August 2018, I also received questions about APTT as its unit price plunged.

In one way or another, I was asked whether I was buying APTT again like I did when its unit price plunged in the past.


Regular readers might remember that I said APTT's 6.5c DPU was unsustainable and a more realistic DPU was 4c.





When I bought more APTT in the past, it was based on what I thought a reasonable and sustainable DPU would look like.

The purchase was not premised on what APTT was distributing at that point in time.

Please keep this in mine as I continue talking to myself.






Although APTT's very high debt level and the fact that they are running a deficit is worrisome, again, I remind myself that all investments are good at the right price.

The last time I bought into APTT, my premise was a realistic distribution yield of around 10.5% based on a sustainable DPU of 4c.

If we were to consider the higher risk that comes with an environment of rising interest rate, shaving 10% off what I thought was a more sustainable DPU then is not unreasonable, given APTT's highly indebted nature.

Now, a DPU of 3.6c is surely more sustainable.





Then, if we were to demand the same 10.5% yield like before, we would only be buyers at about 33.5c a piece (or lower).

Therefore, I wasn't interested in buying APTT in August 2018 as I didn't think it was priced attractively enough.

I also had a feeling that APTT's unit price might drift lower upon going XD as Mr. Market was feeling rather pessimistic.

Finally, weeks later, in late September, I took a bite of APTT.





If I didn't have anything else to invest in, I would have taken a bigger bite as I believe closer to 30c a piece, APTT compensates me sufficiently for the risk I am taking.

Having said this, everything else being equal, I would probably be accumulating APTT if Mr. Market should make me even better offers in future.


APTT is not going to implode anytime soon.

A safer distribution yield in excess of 10.5% is rather difficult to ignore.




2 comments:

NerdLibrarian said...

Hi AK

How do you decide how much of your portfolio to invest into riskier stocks like APTT and how much into supposedly safer stocks like Singtel? Is it based on yield or do you look at other factors?

AK71 said...

Hi NerdLibrarian,

Basically, more speculative positions should be sized smaller.

The actual size should be tied to our ability to suffer setbacks.

Always ask "to what extent can we afford to be completely wrong" and we will have our answer.

See:
How to size our more speculative positions?

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