Investment Is Just Like Playing Tennis！

Hi Folks, good day to all! For the past few days while surfing the internet and social media, I kept seeing Ads with Adam Khoo playing tennis popping out. Basically, one cannot anyhow whack the tennis ball back just like investing per Adam Khoo. From motivational speaker to investment guru, wow, Adam Khoo is now everywhere selling investment courses!

I can’t help but wonder whether Adam Khoo is making more money from his personal investment picks or selling courses? Anybody attended his investment course before?

SREITS Crashed Again- REITS Or SG Banks More Attractive?

SREIT tumbled down again over the past 2 weeks. Interestingly, I see a number of folks like Josh Tan buying into Mapletree Industrial Trust (“MIT”) or Master Leong strong preference for Mapletree PanAsia Commercial Trust (“MPACT”) to take advantage of the recent “crash” while others like the famous AK71 preferred the local trio of DBS, OCBC and UOB banking stocks as better buy than REITs. For the latter, the local banks are only paying out 50%-60% of their earnings as dividends to shareholders while ploughing back 40%-50% of their earnings into the business which should theoretically keep building up their Net Assets Value and eventually their market price should gradually increase. So it gets kinda of confusing on whether one should buy more REITs during the current downturn for the REITS sector or accumulate more local SG bank stocks given the different opinions of their preferences. 

1. Time to Chiong/Accumulate more SREITs while prices crash and interest rate being slashed gradually into 2025?

Personally, I have mentioned before my thoughts in September 2024 that most of our SREITs are now priced fairly given that we should not expect future interest rate to be near the previous decade of zero interest rate environment. Distribution yield of 5.5% to 6.0% for blue-chips SREITs should be the norm now. Anything that is lower will not compensate for the additional risk premium one undertakes relative to the local risk-free rate. 

MIT’s distribution yield of 5.96% at unit price of  S$2.27 per unit is decent. But I would not say super attractive given that its market value per unit is at a huge premium over its NTA per unit. Since MIT is my second largest holdings already, I did not add on any further.

As for MPACT, while its distribution yield is now at an attractive 6.9% (@ S$1.23 per unit) and its market value per unit is at a large discount over its NTA per unit, the stock market maybe pricing in substantial worsening in distributions from its Hong Kong, China and Japan exposure. Also, its crown jewel of Mapletree Business City seems to be losing its luster. So I guess the usual high risk high reward adage will apply here. It thus depends on which crystal ball you are gleaning into for whether the foray here will reap handsome return or just a lackluster one.

2. Local Banks With Splendid Results Expected Into 2025.

There is no doubt that DBS, UOB and OCBC trio have been having a good run since last year due to the sudden spike in interest rate on their net interest margin and also wealth management business. But if recession comes, bank stocks will also crash and risk of bad debts increase exponentially. I will be staying away from banks for now unless there is a substantial correction in their prices. 

Parting Thoughts and My Watchlist.

Given the recent developments as aforesaid mentioned, I have been focusing my monthly nibble size investments into Endowus bond funds and Keppel Ltd. I thought that overseas REIT such as Link REIT looks more attractive given its market price is almost 40% off its net book value per unit and giving a distribution yield of 7.6% with 21% leverage ratio.

 

CPF Special Account Shielding Strategy Still Working Meh?

Interestingly, I came across a CPF Special Account ("SA") shielding post by Kilde while browsing on SG Investment Blogger. It was published in June 24, 2024 but updated in August 20, 2024. 

But I thought that Mr Lawrence Wong had already plugged the loophole earlier during budget 2024 and it was published on March 22, 2024 on the CPF Board website that the CPF Special Account for those who attained the age of 55 will be closed with effect from 2025 after the Retirement Account is setup. 

Source : CPF Board- 22 March 2024

Strange that Kilde folks are still promoting the SA shielding strategy wor. Or am I missing things out that there is another new loophole?

Keppel Ltd Heavily Leveraged And Un-investable?

Keppel Ltd’s share price has pulled back from its recent high of S$6.65 in early October 2024 to the recent S$6.40 per share. It’s yearly dividends (excluding special dividends or in specie dividends) is around 33 cents to 34 cents. Hence normalised dividend yield is at around 5.3% based on its current share price of S$6.40 per share. I thought that it is a good time to accumulate more of Keppel Ltd after the recent pull-back.

The Concerns of High Debt to Equity Ratio of 0.9 Times.

Interestingly, there were some skeptics who have condemned Keppel as un-investable and unstable due to its substantial borrowings. The high gearing is due mainly to Keppel’s investment properties and property development segment as well as the infrastructure division. Nevertheless, below are 3 reasons why I would personally still invest into Keppel Ltd. 

1. Shift in Business Model To Focus More on Recurring Income Instead of Capital Intensive Business 

The building up of recurring income is on the right trajectory. As seen below, the recurring operating income now forms a substantial part of Keppel’s income streams-asset management and operating activities (sales of gas, electricity, telecommunication services etc amounted to S$773Mil in 2023. This is a 54% increase relative to 2022 and makes up 88% of net profit for 2023. Keppel’s strategic shift to focus on recurring income and monetisation programme will also release more funds for investments and debt repayment. 

 

2. Keppel Is Retaininig More Than 30%-40% of Its Earnings For Growth

Keppel is only paying out about 60%-70% of its earnings per share as dividends to shareholders and retaining the rest for its existing businesses. For 2023, It has a diluted EPS of 49.1 cents and paying out only 34 cents as dividends. 

3. Prize Jewel in Data Centres Development and Management.

Keppel has recently announced that it intends to expand its current DC capacity from 650MW to 1.2GW in the near term with an additional S$10billion funds under management growth. This will take 3-5 years as these DCs will be built from scratch at selected sites.

The DC at Genting Lane is a good illustrative example. After the development of the DC, they will monetize it by selling to Keppel DC REIT. After selling it off, Keppel will still make recurring income from the management of this investment property as Manager and also rental income from its ownership in Keppel DC REIT.

Parting Thoughts

Last but not least, Temasek Holdings holds more than 20% stake in Keppel Ltd. In the event of a full-blown financial crisis, Keppel Ltd will be able to tap on the financial might of its substantial shareholder as its final life line to avoid a fire-sales at the worst possible time. I have recently sold off S$20K of my Keppel DC REIT after its strong recovery from its record low in the past 2 years which resulted in its distribution yield dropping to only a mere 3.9% with 90%+ payout and reinvested the proceeds into Keppel Ltd.      

My Stock Pick- Should One Still Invest in REITs and Other Dividend Stocks in Current Market Climate?

Hi Folks, it has been a crazy past 2 weeks with the weakening of the US Market and also our local SREITs. Back on 19th September 2024, I have discussed in my previous post that despite the jumbo 0.5% rate cut by Powell, the strong rally in SREITs maybe overdone as the distribution yield of blue chips like Mapletree Industrial Trust ("MIT") dropping to close to only 5% yield at its highest point during the REIT rally. Stronger than expected US payroll statistics also led to various market concern that inflationary pressure will be back and it is still too early to step off the accelerator for rate hikes. Even with the slight correction yesterday, I think that most SREITs are still over-valued as we cannot expect interest rates to be at near zero like the past decade. 

1. SREITs That I Will Still Buy

Seriously, I really cannot find any good buys for the top blue-chip REITs from the trio Mapletree, CapitaLand and Keppel families. Look at MIT or Keppel DC REIT, will you still dare to go in to accumulate additional units at the current pricing?

If I have any additional resources and forced to buy something, I will probably add on to United Hampshire US REIT ("UHREIT") as its price has once again tapered off and giving out a 8.8% distribution yield as at 8th October 2024. However, since this is one of my top holdings, I am already overly-concentrated in UHREIT and will have to give this very attractive SREIT a miss.

2. Overseas REITs That Is Still Worth Buying.

I thought that Link REIT ("LREIT") listed on the Hong Kong Stock Exchange ("HKEX") is a very undervalued counter.  LREIT used to be linked to the Hong Kong Government and has interesting properties mainly based in Hong Kong and China. My Hong Kong work colleagues have been mentioning this to me. Same for Master Leong YouTube channel which he has also shared as a value for money buy. Its leverage ratio is at an enviable 20% resulting from a rights issue at HKD 44 per unit in March 2023. 

I accumulated around 6,200 units of LREIT from May 2024 to July 2024 at an average price of HKD 32.2 per unit since I am getting these units at a big discount to what those rights issue holder paid in 2023. For me, any purchase that is below HKD 44 per unit is not a bad deal. It is currently giving out a distribution yield of 6.96% along with potential for capital growth.

3. Other Interesting Dividend Counters

I thought that Ping An is an interesting recommendation on various media such as Master Leong as aforesaid mentioned. Ping An price has dropped from HKD70+ to a pathetic HKD30 range due to the belief that the China Communist Party will force Ping An to do national service and recuse one of the Property Development firm. I have been adding Ping An (5,000 shares) from Jan 2024 to Sep 2024 at an average price of HKD 34 per share. Its distribution yield was previously hovering near 8% which was too attractive for me. However, with the current market pricing which lowers the yield to only 5.25%, I maybe selling it off to accumulate other investments if suitable opportunities such as if our local SREITs underwent further price correction.

Parting thoughts

I do hope that the China and HK markets continue with their revival as they have been in a bear territory for many years and hopefully produce outstanding capital growth on top of dividends distribution. Strangely, picking undervalued good dividend paying companies in China/HK has turned up to be a good decision with a stroke of good luck in recent week- I certainly did not expect the sudden capital appreciation in just one week. 

Investment Portfolios Updates (27 September 2024) - Net Investment of S$732K and Projected Annualised Passive Income of S$42K.

A rising tide lifts all boats indeed! Just 2 months back during my last portfolio review, it was still doom and gloom for our SREIT sector spiralling into a bottomless blackhole. Then suddenly, with the much anticipated rate cut by the US Feds finally materialising, all the SREITs counters started soaring. Considering that my REIT heavy overall portfolios makes up 66% of the entire investment, it contributed to a strong recovery. Coupled with the sudden China stimulus measures announced over the past few days, my China centric investments (Alibaba, Ping An, Link REIT and Capitaland China Trust) shot up by close to 25% which help rallied the overall gross investment value and investable cash balances to above the S$1 Million mark. Net investments after netting off margin loan stands at a record high of S$732K.

1. Portfolio 1- Stocks held in SGX Central Depository 
(Note: This portfolio is designed to provide immediate dividends for use as it is under my own CDP account and the dividends credited goes directly to my bank account.)

2. Portfolio 2- Margin purchased securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and can pay off annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

I think that the financing charges would have dropped to 4.75% or 5%- anyway, have not had the luxury of time to find out from my broker. So will just leave the financing rate at 5.25%. Interestingly, my wife offered to lend me funds at a lower by 1% rate to Maybank Securities but I rejected it as I told her that she can put her liquid funds to better use and a higher return.

For Keppel Pacific Oak REIT, I think that if interest rate continue to trend downwards, there will be a higher probability that the REIT Manager may resume distribution payout as soon as the 2nd half of 2025 instead of 2026. 

3. Portfolio 3 (with Tiger Brokers and MooMoo) 

(Venture into higher risk as well as capital growth stocks here)

I have added on to Ping An Insurance just before the huge rally in HKSE. Keppel Corp as well as a small tiny stake in Oceanus were added since the last update 2 months ago.

4. Portfolio 4 (Endowus Unit Trusts & Other Investments)

The Income Insurance and Allianz takeover deal continued to be in limbo. The Monetary Authority of Singapore has not officially given the deal a go ahead. In addition, new capital were injected into the different Endowus units trusts (picked those that are bonds focused with the exception of Fidelity Global Dividend Fund).

Summary

While the investment value of my underlying portfolios have went up significantly, the sad fact is that my projected annual passive income still remain the same as 2 months back which is a tad disappointment. I do look forward to exiting my stakes in Alibaba once it hits over HKD160 per share and then convert them into higher yielding income producing assets.

Why Dividends Are Irrelevant And Don't Matter!

The topic of "Why Dividends Are Irrelevant And Don't Matter" was posted recently by a famous local YouTuber which has once against stirred up lots of emotion online judging by the comments left on his video...haha.  He has over 100K of subscribers. What he says is true in theory but is just bullsh*** in reality as there is simply no stock market with perfect information in terms of valuation of stocks being traded by buyer and seller. This was also covered in my Accounting Theory module decades ago. According to one school of thought, dividends are irrelevant so that the amount of dividend paid has no effect on the valuation of a firm. Also share price will drop by the same amount after the dividends are being declared. 

1. MODIGLIANI AND MILLER ("MM") HYPOTHESIS:

The crux of the MM position on the irrelevance of dividend is the arbitrage argument. Arbitrage refers to entering simultaneously into two transactions which exactly balance or completely offset each other.

The two transactions here are the acts of paying out dividends and raising external funds. When dividends are paid to the shareholders, the market price of the share will decrease. What is gained by the investors as a result of increased dividends will be neutralised completely by the reduction in the market value of shares.

2. Why Dividend Strategy Adopters Are Always Presumed to be Stupid or Adopting an Inferior Approach?

First and foremost, I do not understand why people keep on posting such topics to whack dividend investing. Of course, all dividend investors know that fundamental of a company are important and that one cannot just invest in a company with the highest yield in dividends to determine good or bad companies. 

3. Thoughts on Dividend Investing

I will just write a short paragraph here as there are already many posts and online materials available on what are some of the good side of dividend investing. For example, the past 2 years of SREITs Bear market that hammered their prices to crazy low means that if you sell away your REITs to buy into other form of assets due to a change in your diversification & concentration review, you will not be able to enjoy the recent strong rally in their prices after the rate cut. The dividends being declared will help investors to use them for investment into other asset classes while retaining ownership of one's REIT holding to wait for a recovery from the bear market.   

Parting Thoughts

If you believe that growth investing approach such as investing in companies like Tesla that pays little or zero dividends, then go ahead. It's a free world...do what one likes lor. But don't discount another person strategy due to one's own blind spot.

This is not the first time I seen this kind of post by the above mentioned You-Tuber. He also has another group channel with other finance influencers (think it is called the "Bagholders Pod") which has also launched similar anti-dividend investing content this year to generate views.