Portfolio Purchase: More Dividend Companies!

Utilising the market sell down, I did a purchase of a few China Stocks- Li Auto and Petrochina. Secondly bought more Utdhampshire US REIT. There was a partial sell in Alibaba.

My expected annual dividend is now $25,200 or $2,100 per month.

Dividends

I have been saying time and time- overseas companies are giving outsized high returns. As compared to Singapore stocks and even properties, the risk/reward ratio is too skewed in favour of overseas company. I would buy overseas companies anytime.

As Singaporeans, we too have the advantage of a strong Singapore Dollar currency to buy these overseas assets at a cheaper price relatively. 

I will continue to buy stakes in overseas company. Utdhampshire, Link REIT and china SOE are my targets.

What I Bought

Petrochina- the largest upstream oil producer in China. It gives a 7.2% dividend yield after  accounting for China's dividend tax.

United Hampshire US REIT- I expect the REIT to report a decent result next week and be a 9% dividend yielder. From next year, dividend will start to increase because of its built in annual rental escalation contracts, coupled with the fall in expectations of SOFR rates arising from the Fed decision.

Li Auto- Speculative play on China's EV market.

Elite UK Trust: Good 1H Results, 10% Dividend Yielder

Elite Commercial UK REIT has released its results and it is a positive one. Market responded with a 8% jump in share price

Summary

• Upside surprise with dividend of 1.40 DPU for 1st Half, translating to 10.5% dividend
• Total Occupancy Increase
• Deleveraging Exercise has reduced leverage ratio to below 45%

Elite's REIT tenant is largely the UK's Department for Pension and Work so the rental collections have been prompt. There is no news of the UK government vacating any of its leases.

Borrowing cost has stayed the same at 5.2% interest, indicating that interest cost has peaked.

Future Dividend

With annual rentals increase tied to UK inflation rate, Elite REIT should start to report higher revenue/NPI especially with UK interest rates falling too. The REIT is already declaring dividends at 90%; hence the payout ratio is unlikely to be reduced and dividends will start growing

All in, this is a decent REIT to own. 

As per my view, overseas REITs are giving superb returns in comparison to local ones, and for a few REITs like Elite they have a safe leverage ratio and strong tenants. Many foreign REITs are better than Singapore stocks and I will recommend investors to start investing overseas with our strong currency. 

Close to double digit dividends are aplenty outside of Singapore.

<Not vested in Elite UK>

China SOEs and HK Listed Companies Give Good Return for Investors

While the world had been griped by fear of a market sell down arising to the unwinding of the Japanese Yen Carry trade, one market has stood resilient. That is the Hong Kong market and in particular companies who are of the China National Company ("SOE" status).

They are equivalent to the Temasek Linked companies we know of in Singapore.

Stable Earnings and High Dividends

While many express distrust at these group of companies, the fact is year to date they have delivered an impressive double digit returns for shareholders on top of their above 6% dividends.

Benefits

Firstly, many of these China SOEs are listed in the Hong Kong Market and can be bought by us investors with no legal implications as of now. 

Below is a snapshot of their current yield after dividend taxes; they are providing 7-8% dividend yield.

I am not kidding by the amount of dividends they provide and these are the largest companies in the world as well as proxy to the health of China consumers. 

In this list, there is ICBC: the largest bank in China/the world and Sinopec- the national oil refiner and proxy to China's consumer demands in lieu of its oil refining capacity and concentration to China.

All give higher dividends than even Singapore REITs.

In the area of earnings, these SOEs are not making losses and have continued to be profitable. But due to poor sentiments, the market has priced them to be single digit P/E companies with a high dividend yield. 

Comparing ICBC vs Singapore's DBS, ICBC is only valued at a quarter of DBS's current valuation. If i had to choose, I would buy ICBC instead of DBS anytime.

HKD is Cheap Now

Due to the Hong Kong Dollar (HKD) Peg to USD, HKD is at an all time low relative to Sing Dollar, investors can use the strong Sing dollar now to buy the cheap assets of these SOE to earn high dividend.

The benefit of owning China's SOE are many folds. In addition, there are top notch private run companies such as LINK REIT and Ping An Insurance. LINK REIT is one of the largest REIT in Asia, have presence of shopping malls everywhere including Singapore and is one of the longest running REIT with the strongest balance sheet. 

Unfortunately due to the negative sentiments people have to China, on a whole Hong Kong stocks have been beaten down to the troughs of negativeness. My judgement is that this is an opportune time to invest in these companies. 

Recommendation wise, below are a few companies an individual can get good returns owning a stake:

Real Estate: Link REIT, 00823.HK (8% Dividend and Increasing Dividend)

Oil Refining and Production: Petrochina, 00857.HK & Sinopec/China Petroleum, 00386.HK [7% dividend yielders and the largest refining and production capacity even in the Worlds)

Banking: ICBC, 01398.HK & Ping An Insurance, 02318.HK (7% Dividend Yielder and Largest Bank and Insurer)

Telecom: China Mobile, 00941.HK (6% dividend yielder and growing, entered the cloud services segment of China and endorsed as the Government No 2 backed company behind Huawei, likely will be the third largest player after Huawei and Alibaba)

Portfolio Update August 2024: $2,000 Monthly Dividend and Growing

With the run up in US Office REITs, I took some profits on PRIME US and KORE REIT. I bought shares in Asia Pay TV Trust (APTT) and United Hampshire REIT.

Expected Annual Dividend is $24,000

APTT and Utd Hampshire are among the top 10 highest dividend yielder on SGX. Utd Hampshire has an added advantage that with the potential Fed interest cuts, the REIT's interest expense will reduce and net profits will increase. Utd Hampshire has a dividend policy of distributing 90% of its earnings. I am expecting a DPU of US 3.8 cents for 2024, and US 4.0 cents from 2025.Give it is in the resilient retail essentials side in USA, I am valuing it at 6% dividend yield on forward 2025 dividend. My target price is 67 US Cents. 

Currently, I am on track for $24,000 dividends per year. With the expected Fed Rate cuts, interest expense on many of these companies will fall; and with it potentially higher dividends. 

I am expecting LINK REIT, Utd Hampshire & Alibaba to report higher dividend as the years pass. APTT will be a consistent 1.05 cents yielder and a cornerstone of my portfolio. To me, it is currently the best dividend provider among all asset classes (including properties) based on risk-reward profiling, do hope the 1H2024 results validate my view.

How can MAS Boost The Attractiveness of the Singapore Stock Market?

MAS is now finding ways to boost the development and attractiveness of the stock market. I do hope MAS is reading this because in my view, the main reason why SGX has lacked in development is due to the poor reputation created by current listed CEOs especially in how they have treated shareholders. Often, it is how minority shareholders are paid a small portion of the company earnings as dividends while the owners take a large stake as salary. This unfairness causes many shareholders to avoid SGX.

Many Listed CEOs treat Minority Shareholders like Shit

An often used term is "Minority Shareholders", many companies on SGX are structured in a way that minority shareholders do not have much influence and have to leave it to the management power in sharing the wealth/earnings with the minority shareholders. Independent directors do not have much power or incentivised to help the minority and are friends of the controlling shareholder.

Many listed CEOs take this as an opportunity to disproportionally treat minority shareholder poorly. Activists have tried but due to the families having controlling stake, nothing can be done. Here are a few companies out of the many who has treated shareholders poorly.

Best World International

Profitable company that is cashflow generative. However, in recent times, it withheld dividends paid to shareholders and increased the pay of its top 2 chairwomen (who own significant stake). 

If one do the maths, their increase in salary matches the dividends they would have received if Best World continued its dividend. In a way, Best World was trying to force minority shareholders to give up owning a profitable company. End state, the company is now going for a delisting after an attempt was done to vote out all its independent directors who have done nothing for minroity shareholders. Many shareholders who have not received dividends for years are now giving in, realising how poor in attitude the 2 chairwomen are.

Great Eastern

There has been a conflict of interest where even Great Eastern Directors are paid in OCBC shares, who is the majority and controlling shareholder of Great Eastern. Great Eastern has been giving paltry dividend to shareholders and now even in the current delisting, has been trying to strangle shareholders to give up by offering an "unfair" two pricing strategy. This speaks how poorly OCBC treats shareholders of its subsidary.

Sing Holdings

A cash rich property developer who is now sitting on a pile of cash. It has not much property development and is paying its controlling family a high salary in proportion to the company's net profit while giving a small amount of dividend to minority shareholders. Shareholders tried to mount a challenge in 2016 but failed

Hong Fok Holdings

Profitable hotel operations and yet gives little dividend to shareholders while paying a high salary to its family members

Lion Teck Chiang

Sat on valuable freehold land in Paya Lebar. Despite the profitable operations, LTC paid paltry dividends to shareholders and then did a delisting to buy off shareholders who grew tired waiting for asset monetisation plans. Asset monetisation only happened when LTC was delisted and the controlling family reaped the full gains.

Conclusion

To sum up, the poor investor sentiment and reputation of SGX is due to the poor attitude of company CEOs. They do not want to share the wealth fairly with shareholders. The listed companies I have mentioned above are not within 1 industry but is across many Singapore industries.

Until SGX and MAS understand the problem and starts to allow Independent directors to be more vocal and not allow the friends/families of the controlling shareholders to be independent directors, the problem will not be solved. 

How Things Can be Solved

It does not take a Minister of the State to look into the problem to realise what is wrong, it just takes an individual to understand the problem statement, the conflict of interest happening in Singapore and then thinking of the legislative power to balance the fairness. The role of an independent director is going to be very important and they have to be neutral individuals who will work for the interest of minority shareholders and be paid like how a minority shareholder.

Alternatively, one idea is to have independent directors who are part of the MAS headcount. They will be civil servants who are required to act in the interest of minority shareholders and can be terminated by MAS if found not acting in good faith for minorities. If the companies they are sitting on are difficult, these MAS staff can raise it to MAS's chairman on the unfairness. Their pay will be funded by the independent director fees and listing fees.

What's better than buying Singapore Property for Rentals? Overseas Stocks

Time and time again, we have been hearing from property agents that buying Singapore properties allows you to earn rental returns and capital appreciation.

Let's take this example, pay $1,000,000 for a condo unit, rent it out for 3.5k per month. Make a downpayment of $300,000 to get good returns. The maths will work out as follows.

Revenue

$3,500 x 12= $42,000

Cost

Interest on $700,000 (60% leverage) at 4.2% interest = $29,400

Rental Commission to agent= $3,500

Property Tax on 40k annual value = $4,000

Returns

$5,000 on $300,000 downpayment. Annual returns of 1.6% per annum

Capital Gains= Property Appreciation of 50% and above.

Good Financial Advice?

In my opinion, property agents using the above as financial advice are not giving the optimal solution. 

Look overseas and we have REITs that give 8%-10% returns and have potentially higher capital appreciation.

What are these REITs?

LINK Reit is pherhaps the best. It is one of the largest REIT in the world, one of the lowest leveraged and is diversified across many countries such as China, Hong Kong, Singapore and Australia. Its size is larger than Capitaland and is a blue-chip company

A standard bearer of what a REIT is, Straits Times has covered it and complimented on its value creation for its unitholders. See article here

In my view LINK REIT is better than any property purchase where it is currently paying out 8% dividend per year and has a potential capital appreciation of 60%. My valuation of LINK REIT is HKD$55.

UtdHampshire REIT- Another REIT which I think its good. I have covered on this US retail specific REIT. Utdhampshire REIT sports a 9% dividend yield and has a potential capital appreciation of 60%. Target price is USD$0.70.

Overseas REITs will perform better than local condo launches

Like condo launches, the above REITs will benefit as the interest rate cut cycles happen. For those who borrow to buy condos, the interest expense of your loan reduces when interest rate are lower. This happens too for these REITs.

Hence why go for condo purchases here, when overseas so many REITs offer better dividend returns and capital appreciation. Furthermore, you do not need to go into heavy debt when owning these REITs.

I am not a person who talks, but one who walks the talk. Over time, I have been purchasing REITs and trust such as Utdhampshire REIT, Link REIT, Asia Pacific TV Trust (APTT). I have not recommended APTT much because of its slightly higher risk profit. However, the first 2 offers great value now. LINK REIT is pherhaps the best choice because even Singaporeans would have visited its properties at Jurong Point and AMK Hub. It shows LINK REIT business is real and it provides far superior returns to buying any condo launch in Singapore now.

Disclaimer: The publication is solely for informational purposes and is not to be construed as a solicitation or financial advice as I am not a certified financial adviser. My analysis on companies covered are not an offer to buy or sell any stocks and I encourage readers to do your own "due diligence" before investing.

Trouble in Singapore REIT space: MapleTree and Keppel REITs Report Declining DPUs

In a flurry of results today, many Singapore REITs reported lower DPUs in their latest Financial Results

The reason is simple - due to the rising interest cost these REITs faces. Many of our local REITs interest expenses are now rising as their old debts are now being renewed at higher rates. Let's look at Keppel and Mapletree interest rate snapshot of their debt profile.

Keppel REIT Below

As it can be seen the magnitude of interest rate increase for many Singapore REITs have moved remarkably high. This is due to many of these REITs having hedged their interest rates. It is now only with the expiration of the hedges, do we see the true cost of interest on Singapore REITs.

Bearish on Singapore REITs

Based at where we are, I expect many Singapore REITs to face an eventual financing cost of 4% per annum. This means many REITs will face falling interest coverage ratio of 2.0-2.5 times. This is not good.

Investors in Singapore REITs should prepare to see falling DPU as time passes.

Will Reduction in US Interest Rates Help Singapore REITs?

Only to a small degree.

This is because Singapore interest rates are already comparatively low to US's and these REITs are already employing a strategy of borrowing from countries with low interest rates to finance their debts. 

Hence the reduction in US interest rates will have a small effect of their debt profile. In fact, despite USA starting to reduce debts, I feel Singapore REITs will start to see escalating interest expenses and face financial stress. This is due to their debt profile.

Avoid Singapore REITs, go for Hong Kong etc.

Outside of Singapore, REITs in US, UK and Hong Kong have gone through this painful phase; on the other hand, Singapore REITs painful phase has just started. As an investor, I feel that an avoidance of Singapore REIT should be considered now, foreign REITs such as LINK reit, Keppel Pacific Oak etc are better investment avenues. 

If I were to place a bet, LINK REIT (Hong Kong 0823 stock code) is the best in its class. It sports an 8% dividend yield and has a stronger balance sheet, lower leverage/debt than Singapore REITs and stronger interest coverage ratio expenses. The REIT owns Jurong Point and AMK hub in Singapore.

<Author is invested in LINK REIT>