The Best Dividend Stock for now: UnitedHampshire US REIT

While I have written slightly more about the attractivness of Asian Pay TV Trust's 13% dividend yield, there is a REIT which has delivered a strong first half financial result and has continued to give out 9+% dividend.

Choice Between UnitedHampshire US REIT and Asia Pay TV

Between the 2, I will definitely choose UtdHampshire US REIT; while its dividend is less for now, its future ability to grow its profits/dividend is there. Secondly, its less levered in its balance sheet which makes it safer.

My current plan is to add more Utdhampshire REIT and in terms of proportion, it may be higher than how much I own in Asia Pay TV.

Dividend Prospects 

Asia Pay TV is a fixed dividend stock that an investor can expect to obtain 1.05 cents annual dividend. I do not expect the trust to raise its dividends anymore because it has to deleverage from its high debt ratio of 58% and bankers would want it to reduce its SGD$1.2 billion debt.

Utdhampshire REIT on the other hand, has a lower leverage of 39% and a dividend policy of  90% distributable income.

For this year, investors can expect an annual dividend of about 3.9-4.0 US cents (or about 9.5% yield). The REIT earns approx US$28.2 in distributable income and has an interest expense of about US$19 million. Reduction in interest can be expected because we are moving to lower rates in USA. This means a few million in interest saved. I forsee $4 million in interest savings in the upcoming 2 years. This means an additional 15% increase in dividend. This means future growth to 11%

At the interest rate lows, Utdhampshire REIT paid only US$12 million in interest. If this happens and the sponsor continues to collect its fees of $2.8 million in cash, the REIT is a 12% dividend yielder.

Once the manager collects its fee in shares, the REIT becomes a 13% dividend yielder at 90% payout ratio. All these hypothetical scenarios have not assumed a growth in property revenue yet.

Assets

Secondly with rising property revenue due to a low supply of stripe malls, Utdhampshire REIT will enjoy increased property valuation and higher property revenue. This makes it a dividend grower and have a safer balance sheet than APTT. In fact as shown above, the REIT has been making sales that is above its balance sheet valuation which means much value can be unlocked. I do view that the relisable book value of this REIT can be higher than the US 74 cents stated.

APTT on the other hand, as a TV segment which is declining in revenue. Growth wise, I do not expect much from APTT but this will not affect its 1.05 cents dividend.

In terms of earnings in proportion to debt, Utdhampshire REIT property income to debt is 6.5 times, while Asia Pay TV's is of 7.6 times. Hence the ability to repay their debts should their bankers start to cut off financing, Utdhampshire's is of a better footing.

The exchange rate risk- Weak US Dollar

US dollar has weakened and I think it is a good time to use the strong Sing dollar to buy the reit. I do not think USD will weaken much further relative to Sing Dollar.