Apr 11, 2017

Cory Diary : Dividend Play and Timing

Let's take a REIT Stock which gives 7% dividends annually at current $1 tag. Assuming there is no major "calamity", that's 7 cents annually. Interests up few points during the year, how much is REIT impacted ?

1. Borrowing are secured across few years to decade contract. Some on annual basis. Some on fixed rate. Some Reits hedge their borrowing too.

2. Increase in borrowing cost can be passed down to tenants. In Retail is about 3 years contract. And typically contract renewal are staggers across the periods.

3. Some Reits have internal mechanism where rent escalation is tag to inflation and revenue

4. Rising rates mean the Market is able to absorb the increase to prevent bubble. Is not to kill the goose but to ensure longer road of growths.

Based on above, any dip in well managed Reits, are good entry points. Stock price fluctuation will be mitigated by the dividends. So what we have is likely upsides. Every year we leave too much cash in the bank, the cost are a lot more and is a loss in relative term to inflation.. A gap of 5% between interest and dividends for $100K is $5K. How many Ks we have in our Banks ?


No comments:

Post a Comment