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2Q 2018 passive income from non-REITs.

Friday, July 6, 2018

2Q 2018 saw the first income contribution from my investment in ComfortDelgro, the majority of which was made late last year.

Regular readers would remember that my investment in ComfortDelgro was a relatively large one.

So, the dividend received from ComfortDelgro was a pretty significant contribution to my total passive income for the quarter.








Of course, as ComfortDelgro's share price rose in 2Q 2018, I was sitting on some rather nice gains.



After doing some back of the envelope calculations and looking at the chart, I decided to lock in some gains. 

I blogged about the decision to reduce my investment in ComfortDelgro last month.

Read it: HERE.










With a much smaller investment in ComfortDelgro now, its future contribution to my passive income is going to be correspondingly smaller, unless there is a significant special dividend, however unlikely.

It seems that Mr. Market is feeling much better about ComfortDelgro now but if there should be another bout of depression, all else remaining equal, I would be quite happy to take up Mr. Market's special offer again then.







More recently, however, I did nibble at ComfortDelgro after its share price retraced to $2.20. 

This is consistent with what I shared in both the comments section here in ASSI as well as on my Facebook page that any price decline should find some support at $2.20.

Technically, it seems like ComfortDelgro's share price bottomed at $1.90 to $2.00 and that should provide some guidance for those who are interested in price action.








In 2Q 2018, I added to my investment in SingTel which regular readers would remember as another relatively large investment I made late last year and added in 1Q 2018 on price weakness.

SingTel's price moved in the opposite direction of ComfortDelgro's and this has given me the opportunity to add to my investment in SingTel again and again in 2Q 2018.

For sure, all telcos are facing a more challenging environment but SingTel is not Starhub nor M1 and should not be tarred with the same brush.

You might be interested in my recent blog on Starhub: HERE.







I will talk more about SingTel as I received messages and emails from readers who seemed to be in distress after investing in SingTel coincidentally at the same time I did.


When I bought into SingTel late last year, it was obvious from the charts that the share price could see some weakness and I said as much here in ASSI.

I really hope that people did not bite off more than they could chew.

Even so, I can understand that it could be more than unsettling for some people as they see the share price declining.







Why did I go ahead and buy although the chart suggested more weakness was likely?

Well, one could also ask why did I go and buy ComfortDelgro when the chart was bearish too?

I always say that TA is about probability and not certainty.

I knew what I was getting myself into.

I had a plan and I stuck to it.









Our decision should also be informed by FA.

SingTel had bearish charts but from a FA perspective, I thought I was paying a fair price for SingTel but what about ComfortDelgro?

ComfortDelgro was rather undervalued. 


Yes, I paid an unfair price for ComfortDelgro that was to my advantage.








Now, as SingTel's share price plunged, it has also become unfairly priced and to my advantage as a buyer.

Is SingTel undervalued now? 


I think so.

Like how I was accumulating ComfortDelgro, it is only natural that I would be accumulating SingTel now.

Of course, we have to be aware that cheap could get cheaper.







Treating my investment in SingTel as an equity bond (especially after the management's commitment to an annual DPS of 17.5c for the next 2 years), I am quite happy to add to my investment as its share price plunged. 

Basically, dividend yield has expanded which makes it all the more attractive to the income investor in me.

Unless we have good reason to believe that SingTel is going the way of the Dodo, there is really no need to panic and sell if we are investing for income.







OK, I guess some might have reason to panic.


Who? 

For those who used money which they really should not be using to invest with, they might panic.

If it is money we need for other purposes in the near future, we should not be investing with it and, definitely, I would not use borrowings in one form or another to invest with.






Now, treating ComfortDelgro also as an equity bond, with a surge in share price to a high of $2.50 in 2Q 2018, its dividend yield compressed and rather significantly too which made it immediately less attractive as an investment for income when compared to SingTel.



Both SingTel and ComfortDelgro have strong balance sheets and also strong cash flow.

I believe that they will continue to pay meaningful dividends and I will continue to accumulate on any further price weakness.

Mr. Market is probably overly pessimistic about SingTel but, of course, only time will tell (pun unintended).







To cap it off, I have to say that getting a dividend yield of around 5% from entities like ComfortDelgro and SingTel is probably more attractive than getting a 6% or 7% dividend yield from an S-REIT with a gearing level of 35% to 45%.

There is a reason why SingTel has a credit rating of "A" while AIMS AMP Capital Industrial REIT has a credit rating of "BBB-" both from S&P, for example.







S-REITs pay out 100% of their operational cash flow (not earnings) and have no retained earnings while SingTel has retained earnings, not paying all its earnings as dividends.

If there should be another financial crisis, all else remaining equal, SingTel is likely to weather it better than most S-REITs which partly explains the difference in credit ratings.







I should quickly mention that I also made a small investment in Raffles Medical Group in 2Q 2018.

Please refer to the blog if you are interested in this: HERE.

2Q 2018 passive income from non-REITs:

S$ 47,043.92







Overall, 2Q 2018 has turned out pretty well for me with the receipt of passive income, capital gain and also opportunities to buy more good stuff on the cheap.


Related post:

1Q 2018 passive income from non-REITs.

8 comments:

Ben said...

Hi AK,

Another decent return for you in the second quarter of 2018. This goes to show that patience and continuous investment are the way to achieving FI. Hence, option to RE is anytime at one's preference.

Ben

AK71 said...

Hi Ben,

Investing for income might sound like a boring avenue to eventual financial freedom but for those who have the will and ability, it works. ;)

AK71 said...

Reader says...
i guess ur 3q dividends be another bumper harvest since u r accumulating singtel but u not scared?

AK says...
With dividend commitment from SingTel, dividend yield has expanded with a lower share price. Unless we believe that SingTel can ill afford the dividend or that SingTel is going the way of the Dodo, there is no reason to panic and sell.

Chris Lim said...

The ex-date for singtel is 26-Jul (which is already way past). Once an ex-date has passed, if I want to sell the shares on the 27-Jul, will I be able to get the dividend still?

Chris Lim said...

Based on https://www.shareinvestor.com/fundamental/factsheet.html?counter=Z74.SI, the NAV for Singtel is $1.8672. Paying $3.10+ for the share, would it be too much premium?

AK71 said...

Hi Chris,

1. If you own the shares before it went XD, yes, you will get the dividends.

2. It would depend on the method you use to value SingTel and if you think it is appropriate.

Chris Lim said...

In some of your posts, you shared an online DCF calculator. DCF is for blue chip, isn't it? What method would you use for non-blue chip or REIT?

Beside DCF, which other methods you also use to help you discern the entry price for blue chip?
I tried searching using keywords like 'Entry Price', 'Methods', 'Model' but can't seem to get to the right post.

AK71 said...

Hi Chris,

I am not a certified analyst.

I anyhow blog.

You are welcome to anyhow read. :p

When to BUY, HOLD or SELL (Part 1).

Best hit the library and borrow books to read.

You can start with the books I listed in "Food for thought" in the right side bar of my blog. ;)

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