BREXIT and 1H 2016 income from non-REITs.

Were there any major development in the non-REIT space for me in 2Q 2016? 

Selling most of my investment in NeraTel probably qualifies. I sold about 90% of my investment in NeraTel. 

Being a relatively substantial part of my investment portfolio, the sale, as you might have guessed, bumped up the cash level in my portfolio by quite a bit.

A happy problem?

In the short term, with the divestment gains, it is probably a happy problem but if I do not put the money to more productive work, we would have to remove "happy" from the phrase. So, I put some of the money to work.

In the non-REIT space, in 1Q 2016, some readers might remember that I bought DBS, DBS and more DBS. Even now, DBS is trading at a discount to NAV and a relatively low PE ratio of about 8x. Paying out about a third of its earnings as dividends, the yield is almost 4%. 

Thanks to BREXIT, I was able to add to my investment in DBS as its share price declined, breaking a technical support. I would like to collect more on any further weakness.

In 2Q 2016, I also added to my investments in Starhub, VICOM, QAF Limited and Croesus Retail Trust on lower prices offered by Mr. Market.

Investing for income, I am interested in entities which have strong income generating abilities. Of course, they must pay meaningful dividends.


A handful of readers asked me for my thoughts on Croesus Retail Trust's proposal to be internally managed. It is quite interesting since it would be the first investment trust to be internally managed in Singapore if the deal is accepted by its unitholders.

All else remaining equal, internal management is a good thing for Croesus Retail Trust as it would mean that profits which would have gone to the external manager could be distributed to unitholders instead. The probability of conflict of interest between an internal manager and the unitholders will also be lower.

Of course, an external manager of any investment trust is a profitable enterprise, earning regular fees. No external manager in his right mind would give this up for a song. The price to internalise Croesus Retail Trust's manager is set at a princely sum of S$50 million.

For FY2015, the external manager recorded earnings of about S$500,000. Paying S$50 million to internalise the management would mean paying a PE ratio of 100x. Comparatively, ARA which manages a portfolio of REITs like Suntec REIT is trading at a PE ratio of about 15x. Go figure.

Although I like the idea of an internal manager for Croesus Retail Trust, I think paying S$50 million for this would be a price too high.

Post BREXIT, I also added to my investment in OUE Limited which I first blogged about in 2014 as a possible asset play. I basically paid 50c for what was worth $1.00. It was a smallish position as I was wary of the situation with Twin Peaks condominium. See my past analysis: here.

I decided to add to my investment because the situation with Twin Peaks has improved with many more units sold but the stock traded at an even bigger discount to NAV. While waiting for value to be unlocked, I will get some pocket money from the regular dividends OUE Limited declares.

Very much along the same line of thought, I decided to also increase my investment in Wing Tai Holdings. Although they have much more exposure to development properties compared to OUE, they have a stronger balance sheet. Mr. Market could be overly pessimistic. See my past analysis: here.

In 2Q 2016, I received income from:

1. APTT
2. ST Engineering
3. SPH 
4. PREH
5. QAF Limited
6. Wilmar
7. ARA
8. Hock Lian Seng
9. SCI
10. SMM
11. OUE Ltd
12. Hong Leong Finance
13. DBS
14. NeraTel
15. Accordia Golf Trust
16. Croesus Retail Trust
17. Starhub
18. Ascendas H-Trust


I hope I have not missed out anyone.

Total income received from non-REITs in 1H 2016:

S$ 58,545.01

That is about S$ 9,757.00 a month.

I will continue to nibble at stocks and if a correction in the magnitude of 10% or more should happen, I am prepared to buy much more.


Related posts:
1Q 2016 income from non-REITs.

NeraTel is an investment for income no more?

I have been a NeraTel shareholder for many years. In the middle of 2013, I significantly increased my investment in the company. At that time, I had this to say:

This is a net cash company and has a record of paying consistent and meaningful dividends. Its last payout was 4c a share with an EPS of 5c. At today's closing price of 61c, we are looking at a dividend yield of 6.56% which is very decent. With its recurring revenue streams, dividends are probably sustainable.

I started accumulating at 40.5c a share and the bulk of my investment are at 60c to 63c a share. Yielding about 5% annually, over the years, my investment in NeraTel paid me thousands of dollars in dividends. As an investment for income, it was pretty good.

Its share price went up and its share price went down. I did a few trades but I mostly held on tight to my investment for income. Movement in the share price didn't bother me.

Recently, I received many messages from readers, most of them asking me if they should sell their investment in NeraTel and some did as its share price rose from a low. I said I might consider partially divesting if its share price were to go higher, all else remaining equal.

Well, the share price did move higher and a good reason to reduce exposure to the stock surfaced:


Ingenico’s offer of S$88 million represents 35% of Nera’s market capitalization of S$251.5 million as at close of trading on 19 May 2016. Based on Nera’s FY2015 financials, its payment solutions business accounted for approximately 26% of the Company’s total revenue of S$181.5 million and approximately 21% of its total earnings of S$13.4 million. 

As an investor for income, I was most interested in NeraTel's payment solutions business for its more predictable income generating ability. The other two business segments with their more lumpy revenue are not as comforting.

While I understand that a large part of the gains from selling the payment solutions business would be distributed to shareholders, how much would it be on a per share basis? 

Although a back of the envelope calculation suggests that it could be as much as 17c or so a share, give or take a cent, it could be a case of killing the goose the lays the golden eggs.

Breakfast.

With this in mind, I decided to reduce my exposure to NeraTel significantly, booking a nice capital gain in the process. 

With more than decent capital gains and dividends received over the years, the rest of my much reduced investment in NeraTel is probably free of cost. 

It would be interesting to see how the management unlock or create value for shareholders in future.

See: http://infopub.sgx.com/FileOpen/20160520_NTL_Media%20Release_Disposal_PS.ashx?App=Announcement&FileID=405815

Added on 16 Jan 17:

Related post:
NeraTel: Aggressive selling as 3Q disappoints.
"As I invest primarily for income, I am mainly concerned whether NeraTel is still able to pay a meaningful dividend. I am also concerned if the balance sheet is still strong, naturally....NeraTel's balance sheet is still strong. Operating cash flow has also remained positive."

NeraTel: Aggressive selling as 3Q disappoints.

Attention grabbing headline in the news for NeraTel:

"...earnings of $2 million for 3QFY2015, down 43.3% from earnings of $3.5 million in 3QFY2014."

This news led to some rather aggressive selling of the stock and I wondered if it was justifiable?

I made the observation before that NeraTel's revenue recognition can be lumpy because it is a project based business. It would be a mistake to place too much emphasis on any one quarter's results.

Could we see 4QFY2015 doing better which might give the full year results a boost? Of course, I don't know but looking at the first nine months' results, year on year, things don't look so bad.

The numbers are not pretty, for sure, but they don't look as bad as the headlines in the news which is about 3QFY15.

Quite obviously, revenue is down and expenses are up. 

A very competitive environment is old news, of course. In such an environment, remarkably, more or less, NeraTel has been able to maintain their gross profit margin. This is encouraging.

The question is whether am I going to stay invested?

I first invested in NeraTel at 40.5c a share and later added to my long position significantly in the middle of 2013 at prices from 60c to 63c a share. Given my rather large investment, the question of whether to stay invested or to partially divest is not one to be taken lightly.

As I invest primarily for income, I am mainly concerned whether NeraTel is still able to pay a meaningful dividend. I am also concerned if the balance sheet is still strong, naturally.

NeraTel is still a profitable business although it is not doing as well as before. 

To be honest, I would be pleasantly surprised if NeraTel is able to report a full year EPS of 4c which would mean having to report an EPS of 1.51c in 4Q2015, equivalent to 60% of earnings achieved in the first 9 months of 2015.

However, it would be equally surprising to me if NeraTel is unable to achieve at least a full year EPS of 3c which would suggest 4Q2015 coming in worse than 3Q2015.

Barring a bombshell of a 4Q, assuming that NeraTel should pay out most of its earnings as dividends, I believe a 3c dividend per share (DPS) is reasonable.

NeraTel's balance sheet is still strong. Operating cash flow has also remained positive.

I see challenging conditions for NeraTel but I do not see NeraTel going the way of the Dodo in the near future.

So, I will stay invested but, at this juncture, I won't add to my investment although I believe that NeraTel should be comfortable paying an annual dividend of 3c a share. 

I want to remember that given the stiff competition that NeraTel faces, earnings could continue to come under pressure.

If a DPS of 3c is a more realistic expectation based on a 100% payout of earnings, then, I would need a higher dividend yield for me to add to my investment.

Related posts:
1. NeraTel: 1QFY15.
2. NeraTel: 2QFY15.

NeraTel: 2Q2015 and an interim DPS of 2.5c.

In my last blog post on NeraTel, I cautioned against judging the business based on quarterly results because annualising any one quarter's results would not give an accurate picture of business performance. I made the remark based on what I remember the CEO said in an interview:

"In an interview that NeraTel's CEO, Samuel Ang, gave to The EDGE, some time ago, he said that it is important to remember that revenue recognition could be lumpy because NeraTel is generally a project based business." 

NeraTel has announced an interim dividend per share (DPS) of 2.5c on the back of rather encouraging results for 2Q 2015, quite different from the rather gloomy numbers in the preceding quarter.

Revenue for 1H2015 ($90.5m) improved some 7.2% over 1H2014 ($84.4m).

Although the numbers are encouraging, it is only fair to say that NeraTel is still faced with challenges which are forcing them to accept lower margins.

Note that gross profit margin reduced from 35.1% to 33.1%, although it is still above 30% which is pretty good for any business. At the end of the day, NeraTel is still a profitable business although profit after tax reduced 13.1% for the first 6 months of the year, year on year.

NeraTel has plenty of cash which is one of the reasons why it is attractive to income investors. This is also the reason why it is able to pay out 2.5c in interim DPS although its 1H2015 EPS is 1.93c, Part of the dividend payout is, therefore, a return of capital.

Many moons ago, I said that anyone who thought a yearly DPS of 6c for NeraTel was sustainable must have been on drugs. I said that a yearly DPS of 4c was more realistic.

To be quite prudent, however, for anyone who is interested in investing in NeraTel for income today, a DPS assumption of 3c or 3.5c per annum could be a better idea. In such an instance, based on a closing price of 67c a share, we are looking at a dividend yield of 4.48% to 5.22%.

NeraTel, with plenty of cash, low debt and a good track record, remains, for me, a relatively good investment for income. I am quite happy to be paid while I wait. Yes, my bet is on Mr. Samuel Ang bringing his years of experience to bear and delivering better results eventually.


Related posts:
1. NeraTel: Is 1Q2015 a sign of things to come?
2. NeraTel: What is a sustainable dividend payout?

NeraTel: Is 1QFY15 a sign of things to come?

I received a message from a reader last night saying that NeraTel's profit after tax plunged 33.8% for 1Q FY15. Looks bad, doesn't it?

I was somewhat surprised at the plunge since I remember that the full year 2014 results although not positive were flattish when compared to the year before. We don't usually see big negative shifts in a single quarter in a business as usual scenario. So, it is important to ask whether the decline is due to something that has permanently damaged NeraTel's ability to deliver the goods, so to speak.

NeraTel's management has for a while now mentioned that stiff competition is impacting the business. This is the reality but given their track record, NeraTel should be able to hold their ground even though they might have to give up some margin. This is just my view, of course.

In an interview that NeraTel's CEO, Samuel Ang, gave to The EDGE, some time ago, he said that it is important to remember that revenue recognition could be lumpy because NeraTel is generally a project based business. Annualising any one quarter's results would not give an accurate picture of full year performance. Now, with this understanding in mind, the weak 1Q FY15 results become less worrisome.

The following slides are self-explanatory:

2Q FY15 results, logically, should be better, all else remaining equal.

Although the stiff competition and pressure on margins are pertinent considerations, NeraTel's track record and their continuing efforts to expand their regional footprint, especially in the generation of recurring income, will likely bear fruits in future. How long will this take before we see significant results? I don't know.

However, even as we recognise the costs of expanding their business, as long as NeraTel's current businesses continue chugging along in the meantime, I would be quite happy to wait.

In conclusion, if we believe that 1Q's less attractive results were due in part to the lumpy nature of NeraTel's revenue recognition (i.e. it is an issue of timing), then, earnings over the next 9M should make up for the weaker 1Q FY15 showing.

In my blog post dated 25 Feb 15, I said that at 76c a share then, we were looking at a PER of about 17x and that it wasn't cheap as the stock was priced at 71c a share a year before that with similar numbers. Now, with a rather reasonable expectation that the numbers might remain similar this year, the current price of 65c a share looks more palatable.

See all presentation slides: here.

Related post:
NeraTel: Still a good investment for income?

NeraTel: Still a good investment for income?

NeraTel has been a rewarding investment for me. In their latest results presentation, I like their renewed focus on generating recurring income. It appeals to the income investor in me.

On top of their current strategy to grow recurring revenue from lease of POS terminals, they plan to build and lease in building mobile coverage network in Indonesia to strengthen recurring revenue. We should see their efforts bearing fruit in the following years.

In terms of performance, profit after tax fell rather dramatically by about 30%, year on year, but if we were to remove a one off contribution from negative goodwill which bumped up profit in the preceding year, then, the reduction is a more modest 1.2%. So, it would be quite fair to say that NeraTel's results were flat, year on year.

NeraTel has declared a final dividend of 2c per share. Full year DPS is, therefore, 4c. EPS for the full year was 4.48c. So, the payout ratio is about 90%.

At 76c a share, we are looking at a PE ratio of almost 17x. With a DPS of 4c which is undemanding, we have a dividend yield of 5.26%. About a year ago, NeraTel's stock was priced lower at about 71c to 73c a share. Given that profits after tax in FY13 and FY14 are similar (stripping out gains from negative goodwill in FY13), I don't think it is cheaper now to buy into NeraTel compared to 12 months ago.

NeraTel's balance sheet is relatively strong with very little long term borrowings. They do have a debt facility which they can draw upon to grow their business and they have indicated that they might be doing this soon with regards to their plan to build and lease in building mobile coverage network in Indonesia.

So, what am I going to do?

I will stay invested as I feel that a 4c DPS is sustainable. For me to add to my long position, however, Mr. Market would have to offer me a much lower price, all else remaining equal.


See:
1. Financial Statements FY2014.
2. Slides Presentation.


Related posts:
1. NeraTel: Added to my long position.
2. NeraTel: How high could its share price go?

2014 full year income from non-REITs.

This is the first time I am blogging about my full year income from investments in non-REITs. As my passive income generated from investments in S-REITs has for many years overshadowed income received from non-REITs, it wasn't very meaningful to blog about the latter.



Now that passive income received from S-REITs took a plunge, it has become more essential to talk to myself about what I have done in the non-REIT space which has shored up dividends received this year, making income contributions by non-REITs a more significant part of my total annual income from the stock market.


Before I continue, readers might want to bear in mind that a few of my investments in the non-REIT space have been with me for many years. They are not all new investments, therefore.

Anyway, non-REITs which have contributed to my passive income in 2014 are:

1. Croesus Retail Trust
2. Hock Lian Seng
3. Perennial China Retail Trust *
4. CapitaMalls Asia *
5. NeraTel
6. Wilmar
7. Yongnam
8. APTT
9. ST Engineering
10. SPH
11. QAF
12. Old Chang Kee
13. K-Green Trust *
14. SATS
15. Ascendas Hospitality Trust
16. Singapura Finance

* Sold and will not contribute any income in 2015.

New or old, I have blogged about all the above stocks before. So, if you should be interested in understanding why and when I invested in these stocks, just do a search for them in my blog and you will find the relevant blog posts.

Of these 16 stocks, I increased my long positions or initiated long positions in the last 12 to 15 months in Croesus Retail Trust, Hock Lian Seng, NeraTel, ST Engineering, SPH, SATS, Ascendas Hospitality Trust and Singapura Finance. 

Apart from Singapura Finance, it is quite obvious that I increased or initiated exposure to these stocks because of their relatively attractive dividend yields. I am still an income investor at heart.

I wouldn't say that all the stocks are of the "good to hold forever" variety but it should be obvious to regular readers that I am not averse to selling a stock if I am no longer impressed by its prospects. 

There are many examples which I have blogged about in the past and examples from this year are Perennial China Retail Trust and K-Green Trust in the list shared earlier.

Anyway, the total amount of dividends from non-REITs in 2014 is beefed up mostly by my rather big investment in Croesus Retail Trust which happened when its unit price took a severe beating shortly after its IPO. 

The relatively large increases to my investments in SPH and NeraTel also helped.

Income from non-REITs in 2014:
S$ 61,752.66

This figure could increase in 2015 despite losing the contributions from Perennial China Retail Trust, CapitaMalls Asia and K-Green Trust. This is because Ascendas Hospitality Trust will make a full year income contribution in 2015.

Of course, it is hard to say at this point in time if I could divest partially or fully some of the investments mentioned here in 2015. 

Indeed, I could also put more money to work in the stock market. So, nothing is set in stone. However, I do know that if valuations should go closer to crisis levels, I will be buying more.

I understand that the stock market could get a bit bumpy but my investments for income should provide me with much comfort and also help to fill my war chest in the meantime.

Related posts:
1. 2014 full year income from S-REITs.
2. AK went shopping in the (stock) market.
3. Be comfortable with being invested.
4. Mystical art of wealth accumulation.
5. Portfolio review: Unexpectedly eventful.
"... my decision to increase my level of investment in SPH and NeraTel last year so that my overall portfolio is less reliant on S-REITs for passive income was pre-emptive. Enlarging investments in Hock Lian Seng and Croesus Retail Trust earlier this year has also helped to reduce reliance on S-REITs for passive income."

NeraTel: What is a sustainable dividend payout?

I was having a conversation with a friend this evening and he asked whether a 6c dividend per share is sustainable and I remember I replied to a similar question on my FB wall not too long ago. So, for those who do not follow me on FB, here it is:

"One of the assumptions I had when buying into NeraTel was a sustainable dividend payout of 4c per share. So, when I got in at 42c to 63c, I was looking at a yield of 6.3% to 9.5%. At 68c, when I added to my position, the yield was 5.88%. Even at 73c, the yield was 5.48%.

"As a company tries to grow, it is possible that dividend might reduce. However, being a net cash company, NeraTel could sustain higher dividend payouts if they want to. However, this will be essentially a return of capital if DPS should be higher than EPS."

Related posts:
1. NeraTel: 6 points to note.
2. NeraTel: Added to my long position.

NeraTel: 6 points to note.

An investor since the middle of 2012, I shared my reasons for increasing my investment in NeraTel by 10x in June 2013 and it is currently one of my most substantial investments in a non-REIT. This is an investment primarily for income but it also has a nice growth story.

Victor Chng from The Fifth Person attended NeraTel's AGM last month and he made the following observations:

1. NeraTel is a high dividend paying company.

2. NeraTel's payment solutions business is growing.

3. NeraTel is increasing its CAPEX.

4. NeraTel's payment solutions are easy to scale.

5. NeraTel's POS terminals accept EZ-Link and NETS.

6. Capital restructuring is highly unlikely as of now.

For the details, please read Victor's article:
6 Quick Things I Learned From NeraTel's AGM 2014.

With already a substantial investment in NeraTel, I am in no hurry to add to my position. I will instead wait for some weakness in NeraTel's share price before deciding whether to buy more.

Related posts:
1. Which stocks have I been accumulating in June 2013?
2. Helping our parents invest their money.

Portfolio review: Unexpectedly eventful.

At the end of last year, I shared the results of my efforts in the stock market and also my strategy to grow wealth and augment income in the new year. Quite a few things have happened since then. So, I decided to do a review of how things have moved.

In the S-REITs department, the biggest change this year to my portfolio has to be the major divestment in Sabana REIT. My current long position in the REIT is just a bit more than 10% of my investment at its largest. Whatever I have left is free of cost and will continue to generate passive income although on a much smaller scale.

Also in the S-REITs department, I took part in AIMS AMP Capital Industrial REIT's rights issue and tried to get more excess rights but without much success. Recently, I sold a small percentage of my investment, believing that it was the right thing to do as its unit price ran up, post rights. This REIT is still my largest investment in S-REITs. Having said this, passive income received from this REIT will shrink some 15% this year, given the dilution from the recent rights issue.

In the Business Trusts department, I decided to divest completely my investment in Perennial China Retail Trust after receiving another round of income distribution which I concluded was unsustainable. This was before the takeover offer by St. James.

Also in the Business Trusts department, in late January, I more than doubled my investment in Croesus Retail Trust, believing that, trading at a discount to valuation and offering an attractive income distribution, it is a more dependable passive income generator than Perennial China Retail Trust. Although its relatively high level of gearing is a concern for some, there is unlikely to be any nasty surprises in the area of financing over the next few years.

In other stocks, I added to my long positions in Yongnam and Hock Lian Seng. Yongnam hit a rough patch, as expected. However, things are likely to improve later this year and probably the next. It is a leader in what it does and it has a very good track record. Last year's performance was exceptionally bad and probably would not be repeated. I like how Yongnam started to pay meaningful dividends in recent years and this is likely to continue, conditions permitting.

Hock Lian Seng, like Yongnam, is in the construction sector and also like Yongnam, I expect it to be a beneficiary of increased spending on infrastructure projects in the country. Already, Hock Lian Seng won two major projects which have bumped up its order book and will provide earnings visibility for some time to come. There will probably be more order wins in future. Of course, Hock Lian Seng also pays meaningful dividends which I like.

One stock which I have been waiting for an opportunity to accumulate was CapitaMalls Asia. Well, it is a pity that it will be taken private by its parent, CapitaLand, which offered $2.22 a share. I feel that it is a fair enough price which, perhaps, suggests that the price at IPO was unfair but I will let readers draw their own conclusions in this contentious issue. My acceptance form has been sent out.

A stock which I have turned more cautious on is Marco Polo Marine. Recent developments mean that the business is now somewhat different from what I envisioned it to be in my initial investment thesis. Not giving enough consideration to how the tugs and barges could be a drag on overall performance before, I decided to trim my exposure to the stock. Things could improve in future but, for now, the level of clarity has lowered.

The first few months of the year have turned out to be a bit more eventful than expected on the investment front. My war chest is now fuller through some divestments as well as dividends received. I do not have any immediate plans for the funds and I will probably just hold on to them for now. After all, I had felt that I was too much invested in the stock market and had desired a bigger cash position.

Of course, if I were to keep the status quo, I will, for sure, receive a much lower level of income from my investments in S-REITs this year. How much lower? I guess we will know by end of the year.

Having said this, my decision to increase my level of investment in SPH and NeraTel last year so that my overall portfolio is less reliant on S-REITs for passive income was pre-emptive. Enlarging investments in Hock Lian Seng and Croesus Retail Trust earlier this year has also helped to reduce reliance on S-REITs for passive income.

What next? I certainly do not know if the economy will do well or if it would suffer a decline in the next few years. However, I do know that I am staying invested as long as my investments have reasonably sturdy fundamentals and, preferably, are able to generate reasonably good income for me. They don't have to be stellar performers and I don't have a problem with getting rich slowly.

I will simply wait for Mr. Market to feel depressed enough to sell more to me at prices I cannot refuse while I collect regular dividends in the meantime.

Related posts:
1. A strategy to grow wealth and augment income.
2. Sabana REIT: 1Q 2014 DPU 1.88c.
3. AIMS AMP Capital Industrial REIT: $1.425.
4. Perennial China Retail Trust: Fully divested.
5. Croesus Retail Trust: DPU above forecast.
6. Yongnam: DPS of 0.6c.
7. Hock Lian Seng: $221.8 million contract.
8. CapitaMalls Asia: Farewell.
9. Marco Polo Marine: Price weakness.
10. SPH: Within expectations.
11. NeraTel: A very good investment.

Helping our parents invest their money.

This blog post is inspired by what I read at Bully the Bear. The blog master is now helping his parents manage some of their savings to secure higher returns. The money would have gone into fixed deposits, otherwise. Read: Why my parents are so eager to invest.

My parents also leave money in fixed deposits which they say give them a peace of mind. Whether it is a good idea or not is, of course, open to debate. However, peace of mind is priceless. If they do not wish to put their savings in "risky" investments, I won't go against them. This also gives me a peace of mind because if the "risky" investments turned out badly and I was the one who asked them to invest, then, it would be a nightmare of epic proportions.

Photo taken when I went on a cruise with my parents.

In recent years, however, my mom saw how my investments delivered regular income and instead of being purely a market speculator, she decided to have me help her invest some of her money. She now gets more than $1,000 in passive income from stocks per month which is a nice bit of extra money for a person in her 60s.

More recently, my dad asked me if I could help him invest some of his savings as well. Of course, I have to do it. Why? He is my father. No other reason needed.

I told him that I could possibly get an 8% yield for him but the principal sum will have to be locked up for at least 5 years. That was my only condition. So, he has to be sure that it is money he will not need. At the end of the 5 year period, he will get 100% of his capital back if that is what he wants or he could stay invested.

How am I going to achieve this over the next 5 years? Honestly, all things remaining equal, with great difficulty, I suspect.

I could consider investing in the following:

1. Sabana REIT
2. Croesus Retail Trust
3. SPH
4. NeraTel
5. Hock Lian Seng

There are many things we can say about Sabana REIT but the distribution yield is rather attractive with unit price just 1c shy of $1.00 and there is a chance it could go a bit higher with an occupancy level of under 92% now. This allows ample room for improvement.

Croesus Retail Trust has retreated in price since going XD. It is now close to my entry price. This Trust is going to deliver a higher distribution yield than Sabana REIT and if things go the way I expect them to, it could do even better in future.

SPH has always been a favourite of mine as a blue chip investment for income. With the listing of SPH REIT, I like SPH more now and increased my long position in the stock last year. SPH will increasingly morph into an asset light property play even as it tries to reverse the decline in its traditional print business.

Regular readers will remember how I increased my long position in NeraTel by 10x last year in an effort to divert resources into stocks which will not be affected badly by any increase in interest rates. NeraTel is still a net cash company with strong earnings which should see meaningful improvements over time as the company sets up offices in new markets.

Hock Lian Seng is an investment I have held for a few years now. I initiated a long position in the stock shortly after its IPO. It has a strong balance sheet and rather stable earnings. It pays out about 40% of its earnings as dividends. It is one of those stocks that I almost forget I have until it is time for it to pay a dividend again.

If I were to divide my dad's money into 5 equal portions and invest in the above, I estimate that I could possibly get a yield of about 7%.

So, how am I going to deliver the estimated 8% yield?

I am going to cheat.

OMG! AK is going to cheat!

Bad AK! Bad AK!

OK, I am so ashamed of myself. You can stop reading now.

Pause.

Pause.

Pause.

Er... Still reading? You really want to know?

Let there be light!

OK, then, my plan is to keep the money that my dad is entrusting to me in my war chest. Then, I will deliver the 8% yield from my existing investments while I wait for prices to go lower before accumulating with bigger margins of safety.

There is no hurry for me to buy anything from Mr. Market. Well, maybe I could increase my investment in Croesus Retail Trust which I believe is rather attractive if 87c should be retested.

What if prices did not retrace lower but stay at current levels or go higher?

Well, anyway, I have always planned on using a good part of the income that is generated by my portfolio to support my parents when they are no longer working. So, this proposed arrangement is just a matter of utilising my passive income earlier than planned.

It will make my dad happy and that gives me a peace of mind.

Note: If anyone is wondering whether to start an investment portfolio based on the 5 securities I have highlighted in this blog post, please read the disclaimer found at the end of the page first.

Related posts:
1. A strategy to grow wealth and augment income.
2. Hock Lian Seng: DPS of 1.8c.
3. Croesus Retail Trust: Luz Omori and Niz Wave I.
4. SPH: Results are within expectations.
5. Sabana REIT: Am I buying or selling?

A strategy to grow wealth and augment income (2013).

I am primarily investing for income and in my last blog post, in what has become a yearly practice, I revealed my full year income from S-REITs as well as how they fit into my investment strategy. They are relevant to income investors but with the spectre of rising interest rates in the years ahead as well as a peaking in the real estate cycle here, it is sensible not to be overly optimistic about S-REITs in general.

So, apart from a large purchase made in Saizen REIT in the middle of 2012, I have devoted most of my resources to stocks. These should be undervalued and are likely to continue growing for years to come. Since I want to have income from my investments, I would also like for these stocks to pay dividends.

Marco Polo Marine's yard in Batam.

Now, with these stocks, the main strategy is to buy and hold. However, I am not averse to trading around my investments. So, I could divest partially or fully if it is a good idea to do so. For 9M 2013, I revealed that I locked in gains of S$188,625.13. Has the number changed?

Well, I mentioned that I partially divested my investment in Sabana REIT last month. This added S$12,860.03 to gains from trading in 2013.

So, total trading gains in 2013 is S$201,485.16.

What about adding to my long positions?

What I hope to do primarily is to identify good companies, initiate long positions in them at fairly good prices and then wait to add to these positions if there should be bad news which send their share prices down. These are companies which I am comfortable to stay invested in for years, knowing that they possess some competitive advantages which differentiate them.

Warren Buffett famously said that we should invest with the thought that the stock market could close the next day and not reopen for five years. What does this mean?

Invest in stocks of companies which we are confident will do better over the next five years. We wouldn't be bothered by any volatility in their stock prices in the meantime unless it is to add to our long positions with greater margins of safety. If we understand this, we will know what stocks to avoid. How? Do an inversion.


With this in mind, in the last three months, I added to my long positions in NeraTel and Yongnam as their share prices declined due to bad news which I believe are neither long term nor recurring in nature. I have received fairly good dividends from these stocks and I also made some money trading these stocks earlier in the year.

I also added to my long position in SPH. I was paid both the special dividend and the year end dividend for this as well.

Marco Polo Marine is still my single largest investment although its share price has not declined significantly enough for me to add to my long position. The much higher dividend per share paid out recently was a bonus.

I also retain long positions in CapitaMalls Asia and Wilmar International. These are strong companies and leaders in their fields. They are likely to do better in future.

So, was anything new added to my portfolio?

I initiated a long position in Croesus Retail Trust and even added to this position by using funds freed from a partial divestment of Sabana REIT.

Wait a minute? Didn't I say that I am wary of rising interest rates and a possible peaking of the real estate cycle? Yes, I did but Croesus Retail Trust owns malls in Japan and the BOJ is bent on keeping interest rates really low. Abenomics demand this. The Trust has a relatively low cost of debt which is locked in for 5 years.

Luz Shinsaibashi.

Japan has also suffered from continual deflation for 20 years. If anything, the real estate cycle should have a greater chance of bottoming than peaking. Anecdotal evidence tells of a recovering real estate market in recent months that is likely to pick up speed in future.

Although my strategy, with a generous dose of luck, has worked well this year, I can only hope that it will continue to work in the new year.

To grow wealth and augment income? Yes, indeed, that is the plan.

Related posts:
1. 2013 full year income from S-REITs.
2. Yongnam: Substantial shareholder increased stake.
3. NeraTel: Added to my long position.
4. Marco Polo Marine: Exciting times ahead.

NeraTel: Added to my long position.

On 22 July 2013, I mentioned that if the 200d MA did not hold, share price could fall to 66c.

The counter closed at 68.5c yesterday.

Could 66c come to pass? Your guess is as good as mine. Remember that TA is about probability, not certainty.

So, I made a smallish addition to my long position.

If price should test 66c support, I will buy more.

Related post:
NeraTel: A voluminous day of fear.

9M 2013 income from S-REITs and more.

Three more months to the end of the year. Lots of things have happened in the first 9 months of the year. I want to zoom in on the investment front and record some of my thoughts.

The strategy to be invested in S-REITs for income is still working. Of course, with the spectre of the Fed cutting back on QE and a possible increase in interest rates in the next 2 or 3 years, Mr. Market has turned cautious on leveraged investments like S-REITs. This is only natural. Unit prices of S-REITs have become more realistic as a result.

When Mr. Market is pessimistic, that is when we are likely to get good deals. As to what is a good deal, I am sure this is rather subjective. Every person would have a different idea of what is an acceptable margin of safety. Every person would have a different perception of a REIT's prospects.

Having built up a relatively large portfolio of S-REITs, I devoted more resources to investing in what I believe are undervalued stocks, something which I continue to do in 2013.

So, essentially, what I have done is to keep what has worked well for me thus far while expanding my investments in certain companies, recognising possibly more difficult times ahead for S-REITs. 

This is an approach that requires more work than simply getting passive income from S-REITs but the time when it was a no-brainer to buy and hold S-REITs probably ended sometime in the second half of 2012.

For 9M 2013, how much did I receive in passive income from S-REITs? 

$92,872.65

Full year 2013 income from S-REITs is most likely going to be lower compared to 2012 because I sold a significant portion of my investment in LMIR earlier this year and also because Saizen REIT distributes income half yearly (i.e. there is no income distribution in December from Saizen REIT).

Also, we might want to bear in mind that, although hedged, the weaker Indonesian Rupiah and Japanese Yen could result in lower income distributions in S$ terms for unit holders of these REITs in the year 2014.

With twice as much industrial space being scheduled for completion in 2014 and 2015 than any single year in the past decade, the possibility of stagnating or even a reduction in income for industrial S-REITs in future cannot be discounted. This is why looking at WALE (Weighted Average Lease Expiry) of industrial S-REITs is more important now.

Although I would have liked nothing better than to sit back and collect passive income regularly from S-REITs, doing very little else, I decided to move out of my comfort zone. For sure, there were bumps along the way but my efforts have generally been rewarding thus far. 

What did I do?

I increased my investments in stocks which are likely to be dependable passive income generators such as SPH and NeraTel. 

I also hold long positions in stocks which I believe would benefit from the Chinese consumption story such as CapitaMalls Asia, PCRT and Wilmar. 

Any dividend from investing in these stocks and any gain from trading would go towards cushioning the possible decline in income from S-REITs in future.

Up to 15 September 2013, the total gain from trading this year amounts to: 

$188,625.13

It was fortuitous the way the China Minzhong saga turned out. It preserved my trading gains and grew it rather significantly at the same time. Apart from my long position in Wilmar, all other investments are in the black. 

So, what is my plan for the future? 

Nothing profound really. 

If prices were to decline much more, I hope I would be brave enough to buy more. If prices were to rise much more, I hope I would remember to sell some.

The grand scheme is to augment and not to replace my passive income portfolio. 

For sure, it doesn't mean that I think S-REITs are going the way of the Dodo. Indeed, they are still good investments for income at the right prices. For me, passive income from S-REITs will still be an important pillar in achieving financial freedom. This is unlikely to change in the foreseeable future.

Remember, this blog is not meant to instruct but if anyone finds it inspiring, I will be happy enough.

Related posts:
1. 2012 full year income from S-REITs.
2. Never lose money in real estate and S-REITs?
3. Do not love unless it is worth the loving.
4. Motivations and methods in investing.
5. Be cautious climbing the S-REIT tree.
6. Be comfortable with being invested.

NeraTel: BUY. Target price $2.00.

Some people ask me if it is still a good time to buy into NeraTel. Since I was willing to pay 70+c recently for its stock, it must be a good idea to buy at the current price too, especially when a dividend of 2c has just been declared, right?

I think some people got me wrong. They have to understand my motivation for being invested in NeraTel in the first instance. It is primarily for income. For income? Yes, I added to my long position in the stock in a big way not too long ago because I was looking for a non-REIT to become a bigger part of my investments for income. NeraTel fits the bill.

"So, the 10x increase in my long position in NeraTel stems from a need to look for alternative investments which are high yielding but with a low or zero probability of being affected negatively by interest rate hikes." Source: Motivations and methods in investing.

As I revealed, I first got into NeraTel not at 60c or 63c. I first got into NeraTel at 40.5c. I know people who got in even lower. I didn't do much by way of due diligence back at 40.5c. So, it was a smallish position. I just bought and held.

Due diligence in June confirmed that:

"This is a net cash company and has a record of paying consistent and meaningful dividends. Its last payout was 4c a share with an EPS of 5c. At today's closing price of 61c, we are looking at a dividend yield of 6.56% which is very decent. With its recurring revenue streams, dividends are probably sustainable." Source: Which stocks have I been accumulating in June 2013?

Now, at 80c a share, with a DPS of 4c, we are looking at a dividend yield of 5%. That is still pretty decent for anyone who is investing for income but I don't think of it as extraordinary. I think of it more as ordinary. So, in my opinion, it is a fair price. Not expensive but not cheap either.

Then, why did I buy at 70+c? Regular readers might remember that I did that only to restore my long position after a partial divestment at 84c earlier. I did not end up with a long position bigger than what it was prior to that partial divestment. This is consistent with my primary motivation to have NeraTel contribute meaningfully to my passive income. The gains from trading was a bonus.

So, do I not think this is a good time to buy more of NeraTel's stock? Weren't NeraTel's results good? Don't I think NeraTel will be able to deliver on their KPI of a 100% growth in profits over the next 3 years?

Paraphrasing my recent comments on my Facebook wall (https://www.facebook.com/assi.ak.9), I think the results are good. It is a good business to invest in. However, with the share price being where it is, anyone buying now is buying into a belief that the company will do even better in future. Much better. This is not hard to believe but there is, obviously, a risk that we could be wrong.

3 years although not long is not short either. Many things could happen in 3 years. If 100% growth could be achieved, this stock should be worth $2.00 by then. $2.00? Yes, this is just a back of the envelope estimate.

How do we balance the history and the future of the company? Looking at past performance is easy but to look into the future with accuracy? That is definitely not easy. However, this does not mean that people will not try to do it and there are many BUY calls with their own target prices and fair values for the stock. We have to remember that all these are based on expectations.

Although Mr Market is able to accept much higher PERs for growth stocks, if NeraTel should disappoint, Mr. Market will show his displeasure very quickly in the usual way. So, what are the downside risks?

If someone is still wondering if he should be investing in NeraTel at current prices, very importantly, ask what is his motivation for investing in the stock. The investment is a good fit for my motivation at the prices I got in. If I were not yet invested, I might initiate a small position. Is it a good fit for his motivation?

As I am corrupted by TA, I also said that investing in NeraTel at current prices is possibly not for the faint-hearted and if we look at the weekly chart, it is easy to see why I said that:

Now, no chartist in this world is able to tell us that NeraTel's share price will definitely retrace to test any of the supports shown by the Fibo lines. No chartist can tell us that NeraTel's share price will not go higher. Heck, depending on one's motivations, charts might not even be relevant!

On that note, happy holiday!