Like any business, leverage allows us to increase our income provided what we earned is more than the cost we borrowed. However this is subjected to lender conditions. When the bank refused to lend you more (weakness), this tell something. If you could borrow cheaper than what the bank willingness to lend you, this says something too (strength).
For a start, for non-believable of Reits ... read Here . Over the years, stable and strong REITS have registered significant capital gains on top of dividends. This started with multiple QEs follow by tapering and rising rates. This also resulted Reits getting more expensive. Let's take one of my favorite REIT Capitamall Tr (CMT).
I have blogged countless time why I invested in CMT. Below 3 of my earliest articles.
Cory Diary : CAPITALAND MALL TRUST 4Q16
Cory Diary : CAPITALAND MALL TRUST 1Q17 ( CMT )
Cory Diary : CAPITALAND MALL TRUST 2Q17 ( CMT )
Each time with increasing Stock Price, the yields get lower. Now, with current 5% yield would we buy ? Before we able to answer this we need to consider a few points.
1. Singapore economy has been performing relatively well. We have strong currency and unemployment is relatively low. Cash get accumulated in saving banks.
2. Property curbs have driven away many investors
3. Interests rate despite increasing is still a low rate.
4. Singapore Saving Bond = 2.5% ( 10 yrs ) capped by recent ceiling of 200k.
5. World is on low growth path
This implied there is a large reservoir of cash seeking for opportunities that can beat SSB dividends and long term dividend returns and growth will be bonus. This money aren't expecting Best World type of stocks for those who do, many fails. Which non-REIT stocks can beat CMT on that ?
Now to the last comment for our thought. With lowering yield in CMT. Would we buy. This is back to the fear of anchoring that one should avoid. With 5% yield, how many options out there that can give us relatively safe and constant 5% dividends with some growth ?
Final note, this need not be CMT. It can be Ascendas. It can be Maple family. But a well managed Reits take out a big chunk from public listed company mindset of owner that "This entire company is mine mentality".
So did we see a peak in Reits recently ? Your guess is as good as mine. But long term, whatever fluctuation in prices, your dividends will catch up to cover. The important point is, how long.
Got your answer ?
Cheers
Cory
2019-0209
I think many Reit investors will also monitor valuation trend of these "pedigree" Reits --- whether are they currently on the historical high end or low end or in between?
ReplyDeleteThey won't buy or add if current valuations are on historical high end.
Think this is kind of anchoring. Many of this reits have been on uptrend for many years.
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