Apr 25, 2019

Cory Diary : The Challenge of Dividend Investing

I have been collecting a number of concern investors ask in current market in regard to dividends investing. Usually people tied this investing style to Reits/Trusts. For simplicity, we will think as such. A number of naysayers have missed the Reit and Trust boats or keen investors have got off too early. For this post I will try to "Logic" it.

Very often people still view Reits / Trusts as a scam. I myself too once. We view it as a type of ponzi scheme where they tapped on retailers money to offload their lousy property at high price how else not if public listing is not for it. Pay themselves high management fee. And suck retailers out of daylight with rights.

There is half truth in "ponzi" and Public listing logic in my higher understanding today. As many business, is quite common to use leverage and cash flow. Most obvious is bank which uses deposits. So if we think bank is ponzi, then the definition needs to be re-write.

How to keep our City vibrant before it ages ?

With public listing/loan, Reit /Trust technically can "last forever" if they are properly managed.  The government encourages it which is why they are happy to provide tax break as long 90% incomes are distributed as dividends. They keep asset well managed and our city vibrant. This will also enhanced tax revenue with better businesses. 

Like any businesses,  they are each of their own businesses. There are few examples where reits failed which I view as poor management. And we do have a number of trust too but more with industry cycles and poor business environment to invest in. However, we can't really classify them as a whole in comparison to S-chip where I would think 90% are rubbish listing therefore classify them whole could make some logical sense to oneself.

Like any business, management integrity is important. And so are manager and sponsor of Reit and Trusts. Btw I prefer private placement because it tells me the counter i select is attractive and this reinforce my selection. Yes, there is a price I am willing to pay.

There is another concern in the market. Which is with increasing stock price, some people view there is lack of safety margin. There is a group who hold the thinking that those who have bought early can continue to hold though. We need to be clear in our thoughts that safety margins come in because we can't value a business safely. We need MOS. For business like Reits, dividends is fact and growth are the fundamental and the valuation can be measured. The question is how much yield we prefer. 

Therefore, unless we are anticipation crisis like GFC or deep recession, safety margin maybe kind of weird concept to dividend investor. As said, Investor receives cold hard cash in the form of dividends. As long you are are happy with current yield, that's your plan and your fundamental. If the price go above your expectation, should you sell ? Now, this is interesting. From experience now, I think we should not if we are not active trader. But the temptation is always there. For capital gain and the hope is that it will came back down to be picked up again. That's greed and speculation set-in and this is where charting and market sentiment comes in but let's be clear,  this is trading arena. 

Is true there are a few share price over the years swing like a pendulum. But this has nothing specific to reit/trusts issue. Is more like issue that can happen to any businesses. And when we are in macro environment, affect the market generally. So what i am thinking is forget about capital gain or loss. They will just fluctuates within certain parameters for well managed companies. If they aren't well managed, cut-loss or taking profits matters. And I won't be back till there is change of management or fundamental that I feel will be positive. So don't get me wrong. 

Tendency for investor to do trading of Trust/Reits. If the price get too high, I should sell first and wait to get better yield. One should not buy. I do this quite often. Frankly, I am not so sure it works for me. I like it to work though but capability limited. 

In current point of time, appears the lowering of yield is tied to global and investment climate. There aren't on par investment that provide much better yield for the risk. So the other risk is you can't buy back. And this is the fear. Your need this dividends for your lifestyle,  retirements or cash-flow. And if the price does returns, the time staying out of the market after totaling up the dividends loss, the benefits probably aren't there. Furthermore, if it does come back if it went down deep like many years of dividends, you may want to be careful on this counter on their management or moats.

I make the mistake to sell some CMT earlier ... darn ... darn ... same for Ascendas Reit. Same to Parkway Life Reit. Same for AA Reits ...  I maybe lucky a few times but not always. I consider this luck or speculation for that matters. This is to keep my blood excited and that's about it. But if you ask me does that makes financial sense, maybe not. They are all well managed Reits so far. So the key essence is still back to management/business moat. The practice I still retain will be re-balancing in my portfolio when the counter get too large. There is a price though but necessary I feel at this point of my learning and capability. One should match strategy to ones own capability that's the essence. Trying to optimize like a guru is asking for trouble. Someone did it on APTT. Frankly I do not view it as dividend investing but more like market timing and happen to be a trust. Is a science itself though as is based on other metrics.

I hope to document better. I will try again one day. Maybe my strategy will evolve again.



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