2Q 2018 passive income from non-REITs.

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.

2Q 2018 passive income from S-REITs.

Regular readers know that AK is usually pretty inactive as an investor, preferring to do nothing most of the time and just collect dividends.

Well, in 2Q 2018, in the S-REITs space, there was a bit of action.






There was the 1 for 10 rights issue by Frasers Logistics & Industrial Trust (FLT) in which I took up my entitlement and applied for a small number of excess rights.

To be honest, I did not think that the rights issue was very attractively priced. 

Perhaps, it was fairly priced.

We have to take note that the massive deal weakened the REIT's balance sheet significantly while delivering very little increase to DPU and NAV per unit.






I must say that I feel that the deal was better for the sponsor than it was for the REIT.

We shall see if the REIT's DPU grows in future, everything else remaining equal.

Having said this, the REIT should still be a fairly safe and stable investment for income that keeps me happy enough to stay invested.

Even after the rights issue, the REIT is still only one of my bigger smaller investments (under $100,000 in market value but more than $50,000).

Another thing I did in 2Q 2018 was to nibble at Starhill Global REIT as its unit price declined.

As its unit price declined by 5%, I pointed out to a friend that the drop in unit price did not really make the REIT absolutely more of a bargain than it was before.

Of course, I was not interested in adding to my investment then.

If you remember, I mentioned in an earlier blog that with the new tax levied by Malaysia, I estimated a 5% reduction to the REIT's DPU.

So, with a lower DPU, it is only logical that the REIT's unit price took a 5% hit as well.






However, when its unit price declined by much more than 5% later on, I decided that the selling was probably overdone.

In fact, unit price has declined by more than 10% compared to my initial entry price and I couldn't resist nibbling.

After all, there is reason to be hopeful that Starhill Global REIT could do better in future and that buying at a big discount to its NAV is a very tempting proposition and probably provides a decent margin of safety.







The REIT's portfolio of commercial buildings has intrinsic value.

As an investment for income right now, however, it is really nothing to shout about.

Although I feel that there is nothing fundamentally wrong with the REIT, it is really one for investors who are very patient and who are OK with being paid while waiting.

As I bought more in 2Q 2018, Starhill Global REIT has just crossed the line to become one of my larger smaller investments like Frasers Logistics & Industrial Trust (under $100,000 in market value but more than $50,000) but it is on the smaller side compared to FLT.









I like to think that all investments are good at the right price.

At such a big discount to NAV, it is just too hard for me to ignore but without a clearly stronger income investing angle here, I reminded myself not to take too big a bite.

I don't like choking.






Regular readers should not be surprised that the two largest contributors to my passive income from S-REITs are:

1. AA REIT
2. FIRST REIT






DBS recently did a piece on AA REIT, suggesting that it could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit.

• Resilient industrial gem that offers above-average yield of 7.4%-7.6% over FY19-FY21

• Extraction of value from greenfield projects and addition of c.600,000 sqft of untapped GFA could drive revenues by c.16%

• Potential takeover target amid global hunt for quality assets







Frankly, I am not too enthusiastic about this, having lost quite a few good income generating investments in similar fashion already (with Saizen REIT and Croesus Retail Trust being the largest).

Quite honestly, unless there is another bear market, it is not easy to find robust replacements as more meaningful investments for income.





OK, enough grumbling.

Total passive income from S-REITs in 2Q 2018:

S$ 18,715.33

The next blog will be on my passive income from non-REITs and we will have the full picture for 2Q 2018 then.

Related post:
1Q 2018 passive income from S-REITs.

Can I be rich investing for income?

Reader says...

I realised that I don't have enough capital based on dividends to ever FIRE...

It seems like one can get more capital through

1) inheritance
2) work through your way to the top
3) property
4) capital gains when you find a multi bagger.





Seeing that 1 is out since I don't have the privilege of being a white horse or marrying one, 

2 is out since I am a family lady with young kids I am trying to nurture and not leave them to be the spoilt kids of the next generation 

3) is out since I did make a lousy property investment and I know that it isn't going to be a multi bagger (will be happy if it isn't a liability), 

I think my best bet is 4...

AK says...

How much passive income we need to be financially free is not the same for everybody.

For sure, my circumstances are different from yours but you need to set for yourself a realistic goal and work towards it.





Investing for income is about improving our cash flow and overall financial health.

That should be the primary objective.

If we do it well enough, coupled with a relatively simple lifestyle, we could achieve financial freedom within a reasonable amount of time.






Related post:
Make $1m investing for income.

Growing up to be truly rich!

Although we can say genetics make us what we are, our environment plays a part in making who we are.

If we are not careful, certain things we picked up in our younger days could set us back for life.

"Daddy, my classmate's family just moved into their new condominium. Has swimming pool and tennis court. So nice."

If a child said that to his father, I hope the father didn't say:

"His parents must be rich!"

Then, the child would grow up to think that anyone who buys expensive things must be rich.






"Wow, my colleague just bought a Ferrari. Must be rich!"

or

"Wahhhh. My supervisor just bought a Richard Mille watch. So rich. So good."

Yikes!

It is true that some rich people splurge on luxuries but it is not true that people who splurge on luxuries must be rich!







The truly rich are those who can afford to buy all the stuff they need and want

1. Even if they do not have any earned income

and

2. Without ever going into debt.

I believe that this is something that we should teach our children as soon as possible.






We will be improving their chances of growing up to be truly rich.

Related posts:
1. From rich to broke.
2. If we are not rich, don't act rich.

Investing in Starhub at the right price?

My investment in Starhub has turned out to be a bad one.

However, I am not losing sleep over this.

Why? Is it because I am on anti-depressants?

Hey, don't be so like that lah.

I stop taking those pills a long time ago.






I am quite ZEN about the paper loss really because my investment in Starhub is very small especially in comparison to my investment in SingTel which has been, of course, my preferred local Telco to invest in for quite a while now.

To give you a rough idea, the market value of my investment in Starhub is less than 2% the market value of my investment in SingTel.

Although I have been adding to my investment in SingTel as its share price declined in recent months, I have not added to my investment in Starhub even as its share price plunged.

Why is this so?

SingTel has a stronger balance sheet, stronger free cash flow and it pays out a fraction of its earnings as dividends to shareholders.

Starhub, on the other hand, has seen its free cash flow declining in recent years and it pays out much more than its free cash flow as dividends to shareholders.

Although Starhub has cut DPS from 20c to 16c, I think, if the management is financially prudent or unless business improves dramatically however unlikely, DPS should be cut again.




I did the numbers some time back and again more recently. I now feel that a more sustainable DPS could be 10c, assuming things do not get much worse.

So, if we choose to invest in Starhub today for income, we should ask ourselves if a DPS of 10c would make us happy?

I received quite a few messages from readers regarding Starhub recently. Examples:

Assuming that Starhub pays all of its cash flow to shareholders as dividends, I feel that it behaves very much like S-REITs.

Hanging on to that idea, if we can get a dividend yield of 7% or more from Starhub which is probably comparable to what we can get from industrial S-REITs, it is not too bad a deal.

Assuming a lower 10c DPS, even at $1.70 a share, we are looking at a dividend yield of 5.88% which doesn't quite cut it for me even with this new perspective.




Investing in Starhub for income?

Closer to $1.40 a share could be a more reasonable price to pay, I feel.

At $1.40 a share and assuming a more sustainable DPS of 10c, dividend yield would be 7.14%.

What if $1.40 does not happen?

No problem because I would rather invest in SingTel at the current price than to invest in Starhub at the current price, everything taken into consideration.





Looking at the chart, the RSI shows that Starhub is very oversold but like the MACD, the momentum oscillator does not show any sign of a trend reversal.

Although Starhub's share price plunged 5% (- 9c) today to $1.67, we could see it going lower if Mr. Market shares my sentiments.

Things could get worse before they get better.

So, why have I not been adding to my investment in Starhub?

Alamak. I anyhow talk to myself only lah.

You blur? I also blur.

Investing in Raffles Medical Group.

I revealed earlier in the year that I have a few hundred drafts in my blogging account, these are blogs which I started and did not finish.

It is terrible, I know.

There were always so many things going on in my mind and I am sure they contributed to my sleeping problem in the past.

Things have improved for me on the mental health front as I try not to think too much these days.

Anyway, this blog on Raffles Medical Group (RMG) was one of those drafts. 

It was more than a year ago when I started this.

OK, enough rambling.

When I looked at RMG together with Healthway Medical many years ago at around the time of  the Global Financial Crisis, RMG's historical PE ratio was 21x.

That provided a guide for me as to what might be a fair price to pay for a stake in RMG today if there has not been any major changes to its business.

With a PE ratio of about 33x in early 2017, I decided that RMG definitely wasn't cheap.





I thought if its share price should decline by a third, we would see a price movement approximately to its mean.

At the time in early 2017, RMG was trading at about $1.50 a share.

So, a one third decline in share price would give me a target buy price of $1.

Pay $1.50 a share?

Not for me.





Investors who invested in RMG at a PE ratio of 30x or higher had to expect RMG to register phenomenal growth in earnings year after year.

Otherwise, why would they value RMG so highly?

Personally, I could not see phenomenal growth in RMG's earnings happening especially with all the capital expenditure (CAPEX) and also the expected increase in operational expenditure (OPEX).





As RMG's share price plunged over time, I received emails from some readers who asked me to talk to myself but I declined.

They should talk to themselves and ask why did they invest in RMG at higher prices?

Were they investing for growth or were they speculating?





Believing that RMG would deliver phenomenal growth in earnings and accepting a very high PE ratio, they should understand that if growth should falter, Mr. Market could go into a depression.

This is a key risk factor when paying prices which reflect high expectations for growth and this is usually represented by a high PE ratio.

Of course, Mr. Market's optimism could create opportunities for investors of the more patient variety who prefer getting more value for money.

After all, the swing from optimism to pessimism could be quite dramatic and we really should be buying when Mr. Market is feeling pessimistic.





Don't blame the analysts, professional or amateur (including bloggers).

Good or bad, they probably had their plans.

Ask what is our plan?

The truth is RMG is facing some challenges.





With medical tourism in Singapore facing stiff regional competition and ongoing CAPEX with attending start up costs to be seen in their new Chinese hospitals through 2018 and even 2019, earnings at RMG would probably take not one but several hits.

It would, therefore, be a good idea to demand a bigger margin of safety which, of course, means demanding a lower entry price, everything else remaining equal.





Although RMG has a good track record of growing value for shareholders over the years, if we want a better outcome for our investment, it would make sense to pay a more reasonable price.

What is a more reasonable price?

Regular readers know that one method I use is to compare with crisis valuation to help determine if a stock is cheap.





RMG's lowest PE ratio was about 14x. This was during the GFC (2009). So, assuming earnings bottom at 4c a share, at about 56c a share, RMG would hit crisis valuation.

Not expecting another GFC, I decided that paying anything below its historical mean (21x) is probably a bargain.

So, paying anything below 84c a share should provide me with a good starting point.





In September 2017, when RMG hit $1.03 a share, I thought it was still expensive. 

Assuming an EPS of 4c, PE ratio was almost 26x.

Of course, Mr. Market didn't care what I thought and RMG saw its share price recovered.





I decided then that perhaps I should not wait for 84c and that I could nibble if it should ever touch $1 a share (i.e. PE ratio of 25x)

A PE ratio of 25x is significantly lower than 33x but, to be honest, I would still be buying into the expectation that RMG's Chinese investments would do well and lift earnings in a spectacular fashion in future.

If nothing goes terribly wrong, perhaps, the year 2020 is when earnings would improve more meaningfully for RMG.





So, investing in RMG now is to invest in growth but expectations should be realistic.

At $1 a share, dividend yield is about 2%.

So, it probably wouldn't appeal to the purist income investor. 





I got my foot in the door by paying $1 a share but unless the price goes lower from here, I am keeping my investment relatively small.

Related post:
Investing philosophy is timeless.

A $71,000 lesson or a haunting experience?

This is a follow up to an earlier blog (see related post at the end of this blog) and there is a simple but important message in this.

All of us make mistakes, some bigger than others.

However, it is important to remember that there is nothing bigger than life itself.

We are always learning in life.

Life must go on and in a good way too.







Reader says...

I am so sad to fall into such greed and indeed lessons learned not to be greedy at all. 

I wonder how many people in your blog had experienced the same and can offer some encouragement and empathy.







I really feel so stupid for not checking your blog in 2014, and feel even stupider for doing more due diligence check. 

I feel so sorry for those who were in the same boat as us because I saw herds of people joining those conference in hotels giving free food and dinners.






"Crying my heart out" and those who pocketed our investors money must be laughing at us for being so stupid.

I do have feelings of burning down some buildings and at least slapping someone if killing is too much??

Where is the money?

AK says...

I do feel sympathetic.

However, it could be better for you to treat the money as gone and not think about it too much.





I have been in situations where I lost money in investments and a lot of money too and it was horrible.

However, I had to get over it and I told myself to take it as a learning experience and not to make the same mistake in future.





It will take time. 

Cry but let it go after crying. OK? :)

I would rather treat this as a $71,000 lesson than to let it haunt me forever.

Related post:
$71,000 bogus investment?

Should I sell my home and downsize or downgrade?

This is a reply to Ruby, a long time reader of ASSI, but it turned out to be quite lengthy.

So, I decided to publish it as a proper blog instead.






Ruby's comment and questions:

My reply:

Hi Ruby,

Of course, the property agent would want you to sell your home and buy a new one (probably from him too). ;p

Ask do you need to sell or do you want to sell your home?





Your home is a freehold property and does not suffer from lease decay.

This is a fact.

Aging freehold property?

I don't understand why is that an issue.





From the perspective of your home holding its value over time, what's wrong with that?

Now, if you need more money for retirement and if selling your home is the only way to achieve this, then, you have to do it.

Then, you can choose to either downsize (rightsize) or downgrade.





You could get another freehold private apartment but one with a smaller footprint if you care about your home holding its value and often people care about this because they want to leave their home as a legacy for their future generations.

I think a one bedroom 500 sq ft apartment should be good enough for a married couple if the space is used efficiently.






If you need the same amount of space as your current home, if you want to stay in Singapore, then, downgrading to a public (HDB) flat is the only way to go and, with the current rules, resale flats are your only option.

As retirees, I guess you don't have to be located in mature HDB estates.

It is a fact that flats in non-mature HDB estates would cost less and this option would leave more money in your pocket.





Also, as seniors, if this is the route you choose, you don't have to be so particular about shorter remaining leases of resale HDB flats as long as the price is right because HDB flats are for staying in and not meant to be a store of value for legacy planning.

You might also want to read the related post at the end of this blog which is about another reader who was thinking of downsizing.

Wishing you good health and good luck!

Related post:
Downsizing our home for better?

Pay for memberships that benefit (who) financially?

Reader says...

I have been following your blog since last year.

As a middle age self employed who’s asset rich and cash poor, I have been enlightened by your simple strategies on how to save money.

Thank you for the kind sharing!





The matter that I need advice :-

As someone who’s very good at spurring the economy I sometimes buy without much thinking.

So recently I paid a small amount (of money) to join a certain membership. Lazy by nature I thought it will be nice to follow someone whose good at what he’s doing.





So there after again I paid some more money to get another set of stock picks mainly the reits.

Last couple of weeks again they tried to sell another membership which members will get access to the CEO’s portfolio which has been widely publicised cos he’s putting his own money in.






Now this membership will cost much more than the earlier ones and as someone lazy by nature I’m thinking if I should join in and just follow what he’s buying.

But this time amount is big ($1999 for one year or $2999 for 2 years), I wonder if you could share with me your view?

AK says...

All I will say is that I have never paid any money to join any such membership.

The one membership which I like which gives me lots of benefits and which is FREE is my CPF membership.





I know.

Bad AK! Bad AK!

Good luck. ;)





Maybe, AK should do that too. 

Each reader pays me $1,000 to know what I buy and sell in the stock market. 

Then, I would have a lot more money to invest with! 

Wah! Mai Tu Liao! 

Related post:
Financial security in Singapore.

When would I invest in ESR-REIT again?

Reader says...
This is my first email to you although been following your blog for about 3 years.

You are an inspiration to me cause although you are 1 year younger than me but you have already achieve financial freedom long ago.






Understand that you have been blogging about not comfortable with ESR and VIva REIT but you also mention before an investment also depends on the price.

So I would like to find out from you at what level will you consider investing in ESR REIT.

Vanishing in less than 15 years.

AK says...
Absolutely no interest.

The whole deal is a godsend or a lifeline for VIVA (which is a ticking time bomb) but rubbish for ESR-REIT.

Yes, I think ESR-REIT got the shorter end of the stick and the shareholders paid for this and will continue to pay for it.






A big chunk of VIVA's portfolio have land leases which will expire within the next 15 to 20 years (see related post #2 at the end of this blog).

Another big chunk of their assets would see a drop in income as they convert from master leases to multi tenanted buildings.

Income support for UE Bizhub East is set to expire later this year.






ESR-REIT will be taking over this horror of a baby.

It would haunt them (mostly the common shareholders of ESR-REIT) later.

Of course, having said this, if there should be a big crash in price, maybe, then, I might take a look. ;p






Related posts:
1. Merger of ESR-REIT and VIVA.
2. VIVA more attractive with 9% yield?

Singapore Savings Bond short term still more rewarding.

I blogged about the Singapore Savings Bond (SSB) earlier this year and shared how it made sense for me to park some of my spare cash in it.

It is considered near money (with no penalty for early withdrawal) but still not as near as money in a savings account or stored in a moon cake tin at home.

Who stores money in a moon cake tin at home, you asked?

Alamak, if you asked that, you must be new to my blog.

OK, I know.

Bad AK! Bad AK!

Easy to apply with internet banking.

Anyway, I did not put in the max $100,000 which each Singaporean is allowed to have in the SSB earlier in the year because I suspected that with interest rates rising, the coupon could be higher later on.

It was 1.55%.

Now, 6 months later, it is 1.72%.






After receiving a chunk of change from reducing my investment in ComfortDelgro, I want to lock up some of the gains in my war chest.

So, I will be putting some money in the SSB again.

With this, still, I would not be maxing out the allowance of $100,000 per Singaporean.

The closing date for application is 26 June 2018.

Plenty of time.






For more on why I like the Singapore Savings Bond now, read the related post below.

Related post:
Singapore Savings Bond (Jan 2018).