dividend reits investing

Dividend Investing: Why You Should Consider REITs

Investing in dividend yield REITs can provide you with exceptional returns, and here’s why they stand out even when compared to growth, large-cap, or tech stocks.

When it comes to consistent returns and limited downside risk, REITs outshine other options, giving you peace of mind while you sleep. But what exactly makes REITs generate better returns? Allow us to guide you through the philosophy of investing in REITs, unveiling a strategy tailor-made for small investors like yourself.

Why Choose REITs for Investing?

Amidst the plethora of sectors and investing approaches, focusing on dividends is the simplest path. A strong dividend stock is one that consistently shares its profits with shareholders over time. Better yet, it can potentially experience long-term dividend growth.

The dividend yield represents a company’s dividends per share divided by its latest share price. This dynamic number gives investors an idea of the dividends they receive relative to the current price.

REITs, one of the most popular sectors, boast a unique business model centered around investing in real estate, managing assets, and collecting rentals from tenants. By regulation, REITs must distribute at least 90% of their income to enjoy tax benefits. This makes REITs some of the most rewarding dividend machines in the investment landscape.

Are Dividend Stocks Superior?

Multiple studies have demonstrated that dividend investing tends to outperform the overall market in the long run. J.P. Morgan’s research reveals that dividend stocks outshine their non-dividend-paying counterparts. While the research was done 10 years ago, but we think the fundamentals are still applicable in today’s market, despite that the interest rates are at the higher range now.

Jp Morgan dividend stocks
Source: J.P. Morgan Asset Management, Dividends for the Long Term (2013)

The chart above illustrates that investing $1,000 for 25 years in high dividend yield and low payout ratio stocks would have yielded a whopping 2,500% total return! That’s 25 times the initial investment.

Why REITs?

In a land-constrained country like Singapore, properties serve as conservative assets for hedging against inflation and building long-term wealth. The Singapore property market has grown by over 10 times or 1,000% in the past 40 years.

property price index
Source: Property Price Index from data.gov.sg

With direct exposure to properties, REITs offer an attractive asset class for investors seeking to tap into the long-term potential of the property market. The first REIT listed in Singapore, Capitaland Mall Trust, has delivered returns exceeding 500% over the past 18 years.

Of course, REITs Come with Risks

Before diving into REIT investing, keep in mind that it’s not always smooth sailing. Just like during the global financial crisis of 2008-2009, REITs can be significantly impacted. Their values plummeted by more than 60%. The recent Covid-19 crisis also caused Singapore REITs to drop by over 50%.

Additionally, REITs are highly sensitive to interest rates. Debt financing plays a crucial role in funding asset acquisitions for REITs. As a result, their interest expenses become a significant factor. Although there isn’t a direct correlation between a REIT’s share price and interest rates, any increase in interest rates can potentially impact its distributable income.

How to find good REITs

By focusing on selecting REITs with strong fundamentals and a consistent track record of paying dividends, you’ll notice that some of these REITs have been increasing their dividend payouts since their initial public offerings (IPOs). Moreover, some of these REITs are currently trading below their net asset values (NAVs).

Taking Capital Ascendas REIT for example, if you would have invested in the stock since 2005, you will double your portfolio by now (refer to the blue line in the chart below). The stock has exhibited consistent performance, providing investors with both dividend payouts and growth. Over the years, the stock has proven to be a reliable investment option.

Moreover, our portfolio rebalancing strategy (refer to the green line in the chart below) has consistently outperformed the traditional “buy and hold” approach, delivering remarkable results. In fact, the strategy has achieved returns that are 2.5 times higher, showcasing its effectiveness in maximizing investment gains and managing risk. By combining the stock’s consistent performance with our successful rebalancing strategy, investors have the opportunity to optimize their portfolios and enhance their financial growth. We will share the free early access soon, sign up our newsletter below and don’t miss the chance.

Screenshot 2023 06 26 at 9.51.58 PM
Capita Ascendas REIT’s Backtest Results

Our criteria revolve around seeking REITs that trade at a minimum of 5% dividend yield, offer consistent dividend payouts, trade at a discount based on their historical valuation, and are managed by teams with clear growth strategies. We refer to these as dividend growth REITs.

Check out our article on 5 Solid REITs Trading Near Support

With strong fundamentals in place, we believe that the prices of these REITs will likely rebound to at least their pre-Covid-19 crisis values.

So, why wait? Start building your high-quality, high dividend yield, high growth potential REIT portfolio today and seize the opportunities presented by this compelling asset class.

Similar Posts


Leave a Reply

Your email address will not be published. Required fields are marked *