Wednesday, June 20, 2018

Blinded by Yield

I think in Singapore, one of the most popular investing styles is income investing, mostly through dividend paying stocks and REITs, supplemented with retail bonds.

To be honest, it is a strategy that I myself is quite fond of.

Kyith wrote an excellent piece about HY dividend stocks and some ways to think about them. I think it's a great read, especially for people whose analysis consists of only looking at the headline dividend yield number.

Business profits could drop.
Dividend payouts could drop.
Demand for higher yield could increase, price would drop.

Some people might think that fixed income investments might be better, since the payouts can't drop. That is true - to an extent. Payouts could just be cancelled and stopped altogether, ala Hyflux style. Worst still, the principal could just be defaulted on. So are bonds are safe? It really depends which one. This is an example of an extremely unsafe bond.

Almost 3 years ago, I was analyzing Telcos, which are known to be steady dividend payers.

Singtel has gone from 4.03 to 3.16. (minus 22%)
M1 has gone from 3.19 to 1.54. (minus 52%)
Starhub has gone from 4.00 to 1.54. (minus 62%)

Even counting in the dividends paid out over that period, things are not pretty.

Previously when I was focused on SGX, I did invest in M1 and I cut my losses at 19%. I cut losses with Starhub at 5%.

Anyway, I'm just saying don't be too caught up in the yield numbers because earnings don't expand perpetually.

It's easy for me to comment freely since I no longer own any stocks, but I think chasing high yield numbers is one of the most sure way to die. Ask the people that chased Sabana, HPH, APTV and the infamous Rickmers.

If the yield is really so irresistible, why isn't everyone else buying it and bringing the yield down? There must be a really good reason.

Betting on attractive yields relative to its own historical yields is a better approach, in my opinion. Not every REIT is the same, and to just select them based on raw yields alone is really too basic and doesn't take into account the unique characteristics of each REIT. I'd do the same for P/NAV, and then look for the good stuff which have been irrationally swept up in the mess that is affecting everyone.

Anyway, this is just my observation as a bystander. I think so many markets are crazily overvalued. And this is true within the crypto markets as well. It's madness the valuations that some projects are getting.

If everything goes to shit, I might honestly decide to de-risk my portfolio and move some of my wealth back into traditional yield stocks. Yes, buying depressed assets at firesale prices is a low risk move, not a high-risk one.

By the way, I'm positioned for a global financial meltdown, so yeah, I'm kind of biased.


  1. Markets barely moved but so many are kpkb that bear or crash is happening lol.

    If u r positioned for another gfc u r way too early. At least another 1+ yr of bull to go maybe more.

    And the next bear market may be a mild one.

  2. Buy reit when the ave div is some 20% in a crash, It is the safest, my experience.

  3. Yield, revenue, cashflow, all must go hand-in-hand.

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