Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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P.S. If you are unable to make it, please don't feel like you are going to miss anything important because this is just an informal chit chat session with AK.
Another quarter has gone by and it is time for another update.
For a change, I will reveal the numbers first.
3Q 2024 passive income: $85.223.17
This is a slight reduction, year on year, as 3Q 2023 passive income was: $85,307.78
Almost negligible difference but it is still a dip.
The reason for this is the much lower contribution from Sabana REIT which I drastically reduced exposure to.
The REIT was one of my largest investments but this is no longer so.
Losing one of my largest investments is bound to have a big impact on my passive income.
However, as the title of the blog suggests, thanks to higher dividends received from my investments in the banks, the impact is mitigated.
The money from the sale of Sabana REIT was used to strengthen my T-bill ladder which is, of course, my war chest.
I am in no hurry to deploy the money since I am already substantially invested in the stock market.
Looking at the investments which contributed the most to my passive income in 3Q 2024:
1. OCBC
2. DBS
3. UOB
No surprises here since OCBC is my largest investment at almost the same size as my investments in DBS and UOB combined.
DBS is going to generate more passive income for me because of the bonus issue which in effect gives a 10% uplift to dividends received.
UOB is, well, UOB.
Conservative and plodding along but still more than decent enough return.
In a recent video, I said I would not be adding to my investments in the banks as their share prices hit all time highs.
I would wait for a pull back in prices before adding.
To be fair, at 1.2x or 1.3x book value or so, the common stock of OCBC and UOB do not look expensive.
So, if I were not invested in the local banks yet, those would be where I put money to work first.
4. IREIT Global
In a recent reply to a comment on the REIT, I said this:
"IREIT's Berlin property will be vacant for 12 to 18 months very soon.
No income to be generated by that asset then.
So, expect income to be impacted.
There is also the point that you (the reader) raised and it is a point I have made many times with regards to REITs.
They will be refinancing in a higher interest rate environment although as many as 6 or 7 rate cuts are coming by end of 2025.
I made a video almost a year ago to talk about all these and said I would not be adding to my investment in IREIT unless unit price went down much lower.
Still, there were readers who added at between 32c to 36c per unit.
To be fair, it isn't just IREIT, I am not interested in putting more money in any REIT now.
My recent video on banks and REITs made this very clear.
My focus is on income and valuation, not so much the prices."
I recently did a podcast with The Fifth Person and there was a segment on whether banks or REITs are more attractive as investments for income.
In case you are interested, here is the video:
In the latest update, IREIT Global said that they are in the final stages of pre-letting the Berlin property to a hotel and another hospitality operator.
They expect to double the asking rent which I believe is realistic as the Berlin property is very much under rented.
I feel that the Berlin property is currently undervalued and if the REIT's management does a good job, we should see value unlocked.
IREIT Global's gearing ratio is still very low but their borrowing cost would most likely increase in 2026 when they refinance.
This is although we are likely to see many rounds of cuts to interest rate before then as the interest rate would still be higher than what we saw in the years following the Global Financial Crisis.
However, the REIT's relatively low level of debt should help to reduce the blow higher interest rate brings.
I revealed not too long ago, my investment in IREIT Global is nursing a big paper loss.
I use the word "nursing" and not "suffering" because the REIT is still paying me a meaningful dividend even as Mr. Market feels pessimistic about it.
At the current unit price, the distribution yield is about 8% and as I feel it is undervalued, there is no reason to sell.
I am quite contented to be paid while waiting for things to improve.
However, if Mr. Market should go into a huge depression and offer me a 10% distribution yield, all else being equal, I would probably buy more.
This would be very similar to the earnings yields offered by our local banks then.
All investments are good investments at the right price.
The right price is not a static number.
It should change if circumstances affecting it should change.
5. AIMS APAC REIT
I cannot end this blog post without giving AIMS APAC REIT a mention.
Still one of my largest passive income generators after so many years.
To me, this is a risk free investment as I have recovered all my capital many years ago.
The unit price can go up or down and it wouldn't affect me at all.
For people who recently invested in the REIT, please be aware that the REIT has perpetual bonds which means that their effective gearing level is higher than the gearing level reported.
Invest in the REIT only if we are comfortable with this.
Having said this, the REIT is well run and enjoys a tail win as logistics real estate which the REIT is mostly about remains in high demand.
It has been more than a week since my last blog post.
Things have settled into a new normal for me.
In this new normal, my expenses have increased by 3x or 4x.
UOB should be very pleased with me as I exceed the $500 minimum spending required on the ONE Card by a large amount to get extra interest on my savings in the ONE Account.
The increase in expenses is going to be part of the new normal and not transitional, I suspect.
Fortunately, my passive income is buffered which means I am able to absorb the current higher expenses.
Crossing fingers that things do not worsen.
I am still not sleeping well but, fortunately, I am able to take refuge in virtual worlds.
This has saved me many years ago from going into a depression and it still works for me today.
Just spending time alone and being focused on things that have nothing to do with the real world.
Escapism?
Call it what you want but it works.
In a YouTube video I made not too long ago, I said that I could feel apathy setting in when it comes to money matters.
I can say that apathy has definitely set in.
It is next to me now, watching me as I pen this blog.
Apathy says, "What are you doing?"
AK says, "Listen to me, Apathy, you are just a guest. You should try not to get too comfortable."
Brave words.
Writing is therapeutic to me and I am just talking to myself which helps to calm my mind as I try to make sense of things.
Anyway, soldiering on.
1. T-bill yield dropping.
In the last auction, T-bill yield declined to 3.34% p.a.
It could have been worse, I suppose.
Anyway, I got my non-competitive bid filled.
Using cash, 3.34% is still better than what a regular savings account pays.
Of course, if we can get 4% p.a. like we get with the UOB ONE Account, we should maximize that first to $150,000.
With T-bill yields declining and this goes for interest rates in fixed deposits too, high yield savings accounts should have priority when parking our extra money.
There is, of course, the added benefit of liquidity.
I also use my CPF OA money to buy T-bills but I might stop doing this because the break even cut-off yield for 6 months T-bill is 3.33% p.a. in case we lose another 2 months of CPF OA interest.
I would just transfer the money from CPF IA to CPF OA when the T-bills mature.
One less thing for me to juggle.
So, it isn't a tragedy.
2. Singapore Savings Bonds.
10 year average yield on Singapore Savings Bonds is also declining.
I bought some SSB offered last month.
That had a 10 years average yield of 3.22% p.a.
This month, the offer is for an average yield of 3.1% p.a.
It is still above the 3% average interest I would get for doing voluntary contribution to my CPF account, although not by much.
I think I will give it a miss.
Another less thing for me to juggle.
Yes, again, not a tragedy.
3. DBS, UOB and OCBC.
Things seem to have settled down for the stock prices of our local banks.
They have recaptured their supports.
DBS at $35.
OCBC at $14.
UOB at $30.
Mr. Market might have come to terms with the eventual weakening of net interest income as interest rates decline.
However, like I have said many times before, our local banks have other sources of income and they are likely to continue growing as they retain about half of their earnings.
This means that even for people who paid higher prices for stocks in DBS, OCBC and UOB, eventually, their investments will become much more valuable.
For me, being paid while I wait is not a bad thing.
Still, do not throw caution to the wind.
The world is not in a good place now.
So many things have gone wrong and could get worse.
We are fortunate to be in Singapore but we are not shock proof.
Mr. Market could go into a depression suddenly, without warning.
It did not include any capital gains made over the years.
I can safely say that more than half of that $2 million in passive income was from REITs.
If we take into account capital gains from voluntary and involuntary sale of REITs in those 15 years, I have made a lot more money from investing in REITs.
For an average Singaporean like me, that is a lot of money.
It has definitely helped me to achieve F.I.R.E. more comfortably.
However, like I said, things are different already.
In many blogs I published and videos I produced in the last year or so, I said as much.
Rapid and significant increases in interest rates have thrown a spanner in the works for REITs.
Indeed, they have had the same effect on all risk assets and not just REITs.
In an environment where risk free rate is 5% or more, Mr. Market is right to demand more from REITs.
This means yield has to expand, all else being equal.
I made videos on this and I am including them here for people who do not follow me on YouTube:
If a REIT was yielding 5% when risk free rate was almost zero, now, it should yield 10% or so in order to be attractive.
In Singapore, if we take the recent Singapore Savings Bond which offered 3.33% p.a. 10 year average yield, a REIT which offered 5% distribution yield in the past should offer 8.33% today to be attractive, all else being equal.
This is just something to bear in mind and might not be an ironclad rule to follow, for people who still believe in REITs as viable investments for income.
However, it is simply sensible to use this yardstick, I believe.
Anyway, I get the feeling that people are still not as demanding as they should logically be when investing in REITs today.
Many are investing with the idea that interest rates might be rapidly cut from 2H 2024.
Investors who only started investing during the years of very low interest rates might even think that interest rate cuts means a return to the post Global Financial Crisis low interest rate environment which lasted 15 years or so.
Investing in REITs today with such a belief could lead to disappointment.
Bearing this in mind, I also made a couple of videos on IREIT Global before:
Finally, AK is losing money investing in a REIT.
This might make some people cackle with glee.
To me, this is just another example that I am not always right.
It is only paper loss right now but who knows how things would pan out?
Of course, we must not forget that AK is also losing money in another REIT, CapitaLand China Trust.
Things are different now and this is why I have been saying that I am not adding to my investments in REITs in the current environment.
Why do DBS, OCBC and UOB together form more than 40% of my portfolio today?
I have been thinking of taking another long break from social media to focus on other things in life.
Tentatively, I am thinking of coming back in June.
So, this might be my last blog until then.
1. AIMS APAC REIT
This is probably my most rewarding investment for income.
I have been holding to the relatively large investments made during the Global Financial Crisis till today, enjoying a distribution yield in excess of 10% on my cost.
The price appreciation is nothing to shout about but as an investment for income, it has been very good to me.
I would liken it to a bond that has been paying me a very good coupon.
As at 31 March 2024, the REIT has a gearing level of 32.6% which is on the low side.
However, I am mindful of the fact that it has some perpetual bonds which are due for a relook next year and those would likely increase in financing cost.
This is because interest rates and yields are significantly higher now than a few years ago.
This is a good reason to stay cautious if we are thinking of plonking more money in the REIT.
Offering a 7.4% distribution yield, it isn't much higher than what our local banks offer in dividend yields.
The REIT also has to distribute all its income in order to achieve this.
I simply will continue to hold on to my investment since it is already free of cost.
I am partial to receiving "free" money.
2. T-bill
The latest 6 months T-bill auction had a cut-off yield of 3.7% p.a. which wasn't too bad.
I made a video about why CPF OA money should go into T-bills, especially those with auctions in the first half of the month.
Someone told me it was all my fault that non-competitive bids were only 80% filled this time.
OMG!
Bad AK! Bad AK!
Well, like I mentioned recently, my plan is to simply grow my exposure to T-bills unless there is another stock market crash.
This is something I have given some thought to.
I really don't have to do too much on the investment front which is what I plan to do when I turn 55.
So, this is a taste of what's to come, maybe.
I would probably be sending dividends coming in from DBS, OCBC and UOB in Q2 and Q3 into T-bills.
3. Singapore Savings Bond and CPF
This month's SSB is tempting with a 3.33% p.a. 10 year average yield.
In a blog post many months ago, I said it would make more sense for me to buy SSBs with 10 year average yield in excess of 3% p.a. than to do voluntary contributions to my CPF account.
I have already front loaded this and bought enough SSBs to replace voluntary contributions till this year.
With the bombshell dropped by Lawrence Wong on how the CPF SA will vanish once we turn 55 years old, I took a hard look at my CPF savings.
In a recent blog post, I said I would have some $800K in my CPF OA by then and I think that should be enough for me.
I could use it to buy more T-bills if yields stay high or I could simply leave the money in the CPF OA.
Use the interest generated as spending money.
By extension, I don't think I need more SSBs now.
Well, I could change my mind if the 10 year average yield goes to 4% p.a. ;p
Right now, I would rather have a stronger T-bill ladder which means a bigger war chest while waiting for the next stock market crash.
Although it is true that we can redeem SSBs, we wouldn't be able to get the higher 10 year average yield in such a case.
So, T-bills are more attractive for my purpose.
4. UOB
In my video on DBS, I said that it was clear that DBS would continue to do reasonably well even if interest rate were to decline.
DBS does not depend solely on net interest income but has other sources of income.
The same is true of UOB.
Net interest income dipped 2%, year on year.
However, fee income increased 5%.
Other non-interest income increased 3% due to record trading and investment income.
Non performing loan ratio is at 1.5% which means asset quality remains stable.
CET-1 ratio is at 13.9% which is the lowest amongst the 3 banks.
So, little chance of a special dividend from UOB. ;p
By next year, UOB will complete the integration with Citibank's Vietnam consumer banking business.
Of course, the integration with Malaysia and Indonesia was completed last year.
The integration with Thailand completed recently.
Trading at about 9x PE and 1.2x NAV, UOB is offering a dividend yield of some 5.5%, paying out 50% of its earnings to achieve this.
It doesn't look as attractive as DBS but it is attractive enough when I remind myself that DBS pays out a higher percentage of its earnings as dividends.
5. OCBC
OCBC is my largest investment in the banking sector.
Alone, it is larger than my investments in DBS and UOB combined.
I really like OCBC because I think it offers the best value for money.
Well, more accurately, it did.
With its stock price having risen quite a bit, it now trades at about 9x PE, 1.2x NAV while offering a dividend yield of some 6%.
It isn't as cheap as it was, for sure.
Paying out about 50% of its earnings as dividends, it offers a dividend yield of 6%.
So, like DBS and UOB, OCBC grows in value as an investment over time.
Like I said several times recently, there is no need to worry about OCBC's exposure to the Chinese property sector.
Non performing loan ratio is at 1.0% which is even lower than UOB's 1.5%.
Like DBS and UOB, OCBC has demonstrated its ability to generate higher non-interest income.
Net fee income increased 4% while net trading income increased 67% to a new high.
With a very high CET-1 ratio of 15.9%, I am still crossing fingers that we might see a special dividend in future.
As OCBC is the largest investment in my portfolio, it would be something to celebrate if it should happen.
This is a pretty long blog post which I hope it enough to satisfy anyone who is eavesdropping until my proposed return in June.
"You have a CPFIS investment deduction from your Ordinary Account."
I suppose this means that my competitive bid (using CPF-OA money) for the last 6 months T-bill auction that took place on 14 September was successful.
A quick check revealed that the cut-off yield was 3.73% p.a. and this is still relatively attractive.
This is relatively attractive when our local banks are offering much lower interest rates for 6 months fixed deposits.
Definitely, it is more attractive than the 2.5% p.a. offered by CPF-OA even when accounting for a loss of 7 months worth of interest income which would have been paid by CPF.
Why 7 months?
This is due to how CPF calculates and pays interest on our CPF savings, taking only the month-end balance into consideration.
So, all three of my applications using cash on hand, SRS and CPF-OA money were successful.
I find it strange that there seems to be less interest in 6 months T-bill now.
It seems to be weaker compared to a year ago, for example.
I remember non-competitive bids being so plentiful that my offer to buy was only partially filled at times.
Could it be that more people are buying the common stocks of DBS, OCBC and UOB instead, given the higher level of public awareness of how attractive their dividends are?
After all, a 6% dividend yield beats 3.73% p.a. return hands down.
Could AK be doing something wrong?
OMG!
I can feel an anxiety attack coming.
Time to go sink some enemy warships to calm myself down.
Related post: Must buy T-bill? (How to transfer from CPF-IA to CPF-OA?)
Was feeling a little tired after a morning of activities.
Medical appointment followed by grocery shopping.
Lost some blood and still had to carry heavy bags.
After settling down at home, I read the news and I suddenly felt energized!
DBS increased their dividends to 48 cents a share per quarter!
Huat ah!
The decision to invest in DBS back in 2016 at $13 to $14 a share and continuing to accumulate over the years whenever Mr. Market felt depressed is paying off handsomely.
Annualizing 48 cents a share, annual dividend per share is $1.92 which means the dividend yield on my initial investment is in excess of 14% per annum!
Of course, with DBS being one of my largest investments, this is probably going to have an outsized impact on my passive income for the year.
I so stunned like vegetable!
What is even more impressive is that the higher dividend is probably sustainable.
DBS revealed that the expected catch up in funding cost has not been as bad as feared.
In fact, net interest margin saw a further increase of 12 basis points, quarter on quarter.
Net profit grew 48% year on year and 5% quarter on quarter!
I have said before that DBS is able to trade at a juicy premium to book value because of its very impressive return on equity or ROE when compared to UOB and OCBC.
DBS saw its ROE hit a new quarterly high of 19.2%, up from 13.4% in the same quarter last year!
DBS has a CET1 ratio of 14.1% which is in excess of what it feels is optimum.
So, we could possibly see higher dividends to come if DBS has no better use for the money.
DBS could, of course, simply hold on to the money for a rainy day.
Whatever the case might be, DBS is a rock solid investment for both income and growth.
Yes, just like what I said about investing in UOB, we can have our cake and eat it too.
OCBC should deliver good results tomorrow too.
I am feeling so giddy now, I need to go lie down for a bit.
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