Saturday, April 19, 2014

Applying Shareholder Yield to SG REITs?

I've just read the book by Meb Faber, Shareholder Yield: A better approach to dividend investing. I must say, I find that it is a very big eye-opener for me.

I highly recommend this book, not just for people interested in REITs, but also for people interested in dividend investing, especially for people investing in individual stocks overseas. One of the other big revelations is how companies shift their shareholder returns from dividends to capital gains based on the prevailing tax laws, which, of course is the most prudent thing for a manager with the shareholders in mind to do. Therefore, withholding taxes and base country tax laws can play a big role in your investment strategy regarding dividends.

That aside, let me talk about the biggest lesson I've learnt from the book. While I've read literature supporting higher dividend yielding companies as opposing to the lower yielding ones, what surprised me is that companies can be paying out decent dividend yields, but be destroying value elsewhere to fund those distributions.

What use is getting dividends gains at the expense of direct capital losses? No use at all, if you asked me.

Therefore, with this new insight in mind, I am thinking of creating a basic framework regarding the REITs in Singapore, at least to classify them based on some logical rules, to help myself identify which are the ones out there that really have the shareholders benefits in mind, and avoid those operating as a beautifully disguised "pump and dump". Not saying that they are doing it purposely, maybe they are just bad managers who incidentally destroy shareholder value.

A bevy of annual reports will be out in a bit, I think it might be a good time to come up with something that can capitalize on the fresh information.

Dividends: the total trailing 12 month distributions
Net Share Repurchases: value of shares repurchased - value of shares issues
Debt Paydown: reduction in liabilities - addition to liabilities

(Dividends + Net Share Repurchase + Debt Paydown) / Market Cap = Shareholder Yield

For some strange reason, it took me a long time to figure out the calculations in my brain, so I had to go reference a few sites. This one gave the clearest definition to me, along with an illustration to make things even clearer.

The other two that I have here and here are just repetitions, but maybe it's clearer for other people if said in the different way. I do like the 2nd site's way of showing the different parts of the shareholder yield coming from which aspect in a absolute monetary terms. I would have done it in percentage terms, but I think absolute terms help to show growth quite well!

Anyway, I think I might be signing up for a ShareInvestor account. I will try the free trial soon after my CFA. If I do find it very useful, I will probably be thinking of paying for a year's worth of services. It does seem to be very on the ball and information rich. Anyway, let's see how it goes. I do really wish that I had a partner to help me smash through all these data crunching with me, as well as keep me focused and motivated along the way.

One of the next things I will do in the near future is to calculate my retirement plan, haha! 24 and thinking of retirement already, all the old birds would say. Anyway, it might be a fantasy with too many variables, but I do believe in the random saying that, 1 hour of planning saves 100 hours of execution!

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