Often people uses DPU as yardstick for evaluation of Reit returns and this is perfect. Obviously nothing matter if the integrity or risk of the Reits are in doubts. If that is the case, why often we see top performer of Reit investor often has low yield Reit ? Many will argue it takes a huge portfolio to achieve the level of dividend needed. That's a huge misconception when one tries to reverse engineer and implied so.
Another key believes is that they buy early in the dividend game, years ago. And so people hope for a big crash before they will consider the same to stretch their dollar. Hello ? did you buy significantly in Mar'20 Covid crash ? If so why is your portfolio still not big ?
Valuation of Reit in addition to current yield there is another critical factor which I did not blogged much about and that is price growth. Never mind what's behind that drive it in this article. The essence I want to share is price growth. huh, isn't that blasphemy ? Please hear me out.
In March'21 this year, Mapletree Industrial Trust hits low of 2.52. At this price the current yield is about 5.2% in which DPU roughly 13.2 cents. Some would even say 5%. Not that great and many will ignore it. Fast forward today, less than 5 months later, is now last traded at 2.92 on 7/28. Yield 4.5%.
Now, if we add 13.2 cent and the price delta from Mar to end July of 40 cents, that is 53.2 cents. Now work back the math if we use 53.2 cent / $2.52 = 21% for 5 month works. Think it in yield term this is easily 10 times of March'21, 5.2% yield annualized.
Real Life Example
And this is an example on why I bought Mapletree Industrial Reit this year from Feb to Jul'21 this year. I have a price expectation that it can go higher while I am prepared to wait to collect 13.2 cents annually. That's the Magic on why Portfolio can compounded fast because is just not dividend even though we are prepared to sit on it. So next time someone tell you his portfolio is small and will take forever to grow, ask him to think again.
I have challenged two huge misconceptions today that most do not know about. And how I grow mine. How much we understand is up to individual. Next, how I know the price has the potential to go much higher ?
That's another Story Telling which sprinkles across in all my articles.
Articles in this Blog is personal take and educational purposes only. Reader should seek their own professional help when making financial decision and be responsible for their decision.