Friday, January 12, 2018

Dividend Warrior 2018 Investment Outlook

Happy New Year, my fellow warriors! 2017 has been a year of the 'rising tide lifts all boats'. If one was vested in banks, REITs, property developers and semi-con companies, his portfolio would have been lifted by this 'rising tide' throughout 2017. All the doom & gloom forecasts made by most analysts at the start of 2017 seemed rather laughable now. I guess it was partly down to luck that I decided to go heavy on banks & REITs in 2017 as I returned to my income investing roots.

Below is a snapshot of my Singapore dividend portfolio's year-on-year performance. (Data extracted from stock.cafe website on 29 Dec 2017)
  • Market value of portfolio increased 26.5% from S$345k to S$436.5k. This increase came from price appreciation, injection of fresh capital and re-investment of dividends received.
  • Total annual dividends collected increased 33.6% from S$15.5k to S$20.7k
  • Outperformed the STI ETF slightly by 2.83%. My 5-year investing returns are significantly better than the STI ETF.




Biggest Lesson From 2017 - Be Disruption-Proof
Comfort DelGro (CDG) traditional cab rental business being disrupted by Uber & Grab. In the old days, conservative investors usually go for solid, boring blue-chips which are considered more recession-proof. Unfortunately, in this new era of tech disruption, being recession-proof is no longer enough. A company needs to be disruption-proof too. Fast eats slow!

In my opinion, the real-estate industry is rather disruption-proof in general. The 'tenant-landlord' business dynamic has been working reasonably well in the capitalistic world over centuries. There would always be people developing properties, people who owned properties and people who pay rental to use these properties.

People rent properties to conduct all sorts of economic activities - selling products, providing services, storing goods etc. There would always be demand for real estate, even when there is disruption. For example, e-commerce is giving traditional brick-and-mortar retail stores intense competition. However, for e-commerce to work, the products have to be stored & sorted in a warehouse/logistics facility before eventually arriving at your doorsteps. Another example, doctors need to perform surgery in a hospital's operating theatre. The ever-increasing elderly population require nursing homes. Both are near-impossible to disrupt with just a smartphone app. So, we need to figure out which real estate sub-sector would be in greater demand in the future. I am placing my bets on the logistics, healthcare and data centre sectors due to the rise of e-commerce, aging population and growing digital economy.


2018 -  A Year Of Rate Hikes & Crypto-currencies
Markets are expecting the US Federal Reserve to hike rates thrice in 2018. Naturally, this brought back memories of the frenzied 'Taper Tantrum' period in 2013 when REIT prices tanked. Investors were fearful that rate hikes would lead to higher borrowing costs and eventually hurt distributions of REITs.Contrary to popular belief, a rate hike cycle might not be all negative for REITs. During the previous major rate-hike cycle from June 2004 to June 2006, prices of S-REITs had appreciated strongly. 


We are seeing a similar trend in the current rate-hike cycle. Ever since the Federal Reserve raised rate back in December 2016, the ST REIT index had returned +23.6% so far.



The impact of rising rates could be mitigated. Those well-managed REITs have already hedged 75% - 80% of their debts into fixed rates. Furthermore, on average, REITs only have 17%, 18% and 1% of total debt up for refinancing over 2018, 2019 and 2020. In general, branded REITs from the Mapletree, CapitaLand and Frasers CentrePoint 'families' are fairly prepared for the rate-hike cycle. 

Three factors are aligned for the 3 local banks to soar to greater heights. Higher interest rates generally lead to higher interest margins for the banks. A buoyant local property market (surging en-bloc deals) and synchronised global recovery bodes well for loan growth. Recovering oil price means lower provisions for O&G loan portfolio. This trifecta should add up to a positive year for the banks!

Now, we move on to the hottest topic in financial markets - crypto-currencies. What's my take on the meteoric rise of Bitcoin, Ripple, Ethereum etc.? Well, I prefer to stay within my 'circle of competence', which is dividend investing. Compounding dividends over long-term would have a powerful effect on overall returns. Unfortunately,as far as I know, crypto-currencies do not distribute cash dividends. One simply aim to buy low, sell high. Or in recent weeks, buy high and hope to sell higher. Being vested in the equity market is already risky enough, I do not need to expose myself to the extreme volatility of crypto-currencies too.

All I know about crypto-currencies is that they are basically a string of algorithms built on blockchain technology. To me, crypto-currencies fall into the category of 'alternative investments;, like fine art, wine, antique cars, precious metals. These investments are definitely far from my 'circle of competence'. Don't get me wrong, I am not against crypto-currencies. People have amassed huge fortunes literally overnight. Good for them! I don't judge how people invest/speculate their money as long as it is within the boundaries of law. Whatever floats your boat.


Projected Dividends & Distributions in 2018 (ranked in descending order):
  1. Frasers Logistics & Industrial Trust: S$3,150
  2. Mapletree Logistics Trust: S$2,563
  3. Mapletree Commercial Trust: S$2,124
  4. Singtel: S$2,100
  5. Ascendas REIT: S$1,920
  6. Frasers CentrePoint Trust: S$1,785
  7. Parkway Life REIT: S$1,320
  8. Keppel DC REIT: S$1,296
  9. OCBC: S$1,087
  10. Mapletree Greater China Commerical Trust: S$888
  11. DBS: S$775
  12. CapitaLand Mall Trust: S$770
  13. Suntec REIT: S$588
  14. SPH REIT: S$548
  15. Comfort DelGro: S$416
Total estimated dividends: S$21, 330
2018 Dividend Target: S$22, 000

Sunday, December 10, 2017

DW December 2017 Portfolio Update - The Warrior Returns

Current Portfolio Value: $426k 
Projected Annual Dividends: $21.6k 
Projected Monthly Dividends: $1.8k

Top 5 Holdings (48.6% allocation)
1) Frasers Logistics & Industrial Trust (BUOU) 
2) Mapletree Logistics Trust (M44U) 
3) SingTel (Z74) 
4) Mapletree Commercial Trust (N2IU) 
5) OCBC Bank (O39)

8th Anniversary of Investing Journey
Last month was the 8th anniversary of my investing journey. A journey packed with ups and downs. I still remember buying CMT, Suntec & Starhub in 2009 as a wide-eyed beginner, like it was just yesterday. Honestly, this portfolio I have built exceeds way beyond my expectations. It seems like yesterday when I just achieved my $200k milestone ( https://www.nextinsight.net/story-archive-...). Interesting to see how my portfolio has evolved over the last 4 years.
‘Badges’ big and small were earned. Euro debt crisis (PIIGS), Grexit turmoil, U.S. debt ceiling crisis, Arab Spring, Japan's earthquake & subsequent Fukushima nuclear accident, Fed QE Taper Tantrums, Hong Kong ‘Umbrella Movement’, Brexit, Fed rate hikes, Trump election victory, China market crash (still remember the circuit-breakers being triggered on consecutive days), O&G crisis.
Nevertheless, I focused on growing my portfolio & dividend income through all these fears and so-called ‘crises’. All the while, taking those analysts’ and experts’ reports with a spoonful of salt. Things are seldom really bad or really good. As long as we keep earning, saving & investing, the compounding effect will reward us over the long-term. 

2017 Review 
As 2017 comes to an end, I must say this year is set to be one of the best years for my portfolio’s total returns. Unlike 2016, there was no roller-coaster ride (except the occasional colourful war of words between Trump & Kim). My portfolio grew from 3 contributing factors.
1) Sustained rally in the 3 local banks 
2) Unexpected recovery of REITs since the lows of December 2016 
3) Fresh injection of capital + re-investment of dividends received




As I am heavily vested in S-REITs and banks, my portfolio outperformed the STI slightly with a time-weighted return of +23.4% in 2017. My best-performing stock would be DBS, almost +60% y-o-y total returns. Worst-performing stock would be RMG with a -21.8% y-o-y decline. As I returned to my roots and started re-building my income portfolio, its size grew steadily from $388k in June to $426k now. Collected $20.7k dividends in total, which translates into $1,725 per month.


Power of CD
Dividend Warrior

Saturday, December 9, 2017

Comfort - Uber Partnership, Good or Bad?

This article is re-posted here with the approval of a member (Hachiko) from the InvestingNote platform.


Finally compiled a list of positive & negative views from as many members as I could. Tried to tidy up the points. Feel free to comment below if you need me to add more points (provided they are reasonable)


POSITIVES: 

1) With Lion City Rental (LCR) operations off their hands, hopefully Uber can focus on what it is supposed to do best. Improve their routing and pricing algorithm to compete against Grab. One has the booking apps and big data expertise and one has the fleet management and service expertise. 
Both can focus on their expertise. Uber on improving the apps and algorithm, fare and integration/development of different booking services. Cdg on fleet management, utilisation and cost efficiency on maintenance and servicing. The collaboration can also establish themselves as a premium operator as Cdg/Uber have a larger and newer fleet compare to Smrt/grab.
2) Potential increased rental revenue from the larger car fleet.
3) With CDG’s decades of taxi rental and fleet management experience, it will manage and rent out the cars properly and profitably. CDG will not burn cash. The acquisition price is below NAV, $40k per car (3-year old car), can you buy a 3-year old car now at $40k in Singapore? Another bonus, reports mentioned the money for the acquisition is paid by internal funds, it will not affect the EPS so dividends will not be cut. Their automotive workshop is empty, so just nice LCR cars can come in for servicing & repairs.
4) CDG acquired the car rental business at a discount instead of premium price. if things don't work out they can sell, scrap or export the cars but they get to use Uber booking app platform and to fight directly with Grab.


NEGATIVES: 

1) Judging from the sharp decline of price this entire week, it is possible that insiders already knew about this deal and they are not sanguine about it.
2) CDG itself is already struggling to rent out its taxis. Its fleet has shrunk steadily throughout 2017. The number of drivers applying for new taxis has also fallen off sharply in recent months. LCR has lots of unleased cars too parked at Big Box, Peace Centre, Textile Centre, etc but the sheer volume of cars seen here is telling of their struggle. LCR is loss-making. It is bleeding cash. 
http://roadtimes.com.sg/2017/05/05/trouble...
So, this makes taking over LCR a bad idea. A bad car rental based company sticking to their dying model, and sinking another large sum of money into another rental based company, which has a similarly sullen reputation from the issues that they give drivers when they are returning their rental vehicles (word on the street). This feels like CDG is throwing more good money into a sinkhole.
3) This deal feels like CDG is paying Uber to use its platform/software. CDG paid their fair proportion of net assets of a loss making company just to participate in the private hire market. Few years ago, Grab approached all taxi companies to collaborate and CDG was the only one who refused to. The other smaller players all joined. CDG could’ve participated using Grab’s Platform without paying for it. Now it’s paying 51% of the net assets of a loss-making company with a lousy partner (Uber).
Grab is so much stronger than Uber, they wisely stayed in South-east Asia where they have competitive local know-how, without stretching themselves thin.In comparison, Uber is a joke. They are fighting wars on so many fronts, many of which are not actually related to operations. (Sexual harassment suits?!)
4) Uber is primarily a tech company. It is not interested and not able to run a car rental management company in the long-term efficiently. So, Uber is more than happy to ‘offload/dump’ its huge fleet of cars to CDG. This is also why Grab was unwilling to completely buyout SMRT taxi.
5) LCR has $1 billion debt as at Dec 2016. 
http://research.sginvestors.io/2017/12/com...
6) LCR may be under CPIB probe. 
https://www.theedgesingapore.com/uber-said...

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