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 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


edragon said...


Raising rates is a positive indicator so eventually lead to a positive market; most markets at least.

I like your usage of the word speed in digital disruption. Essentially, the speed and its consequence, time saving feature but it MUST be accompany by effective and speedy fulfillment or delivery.

MillennialDividends said...

Wow close to $22,000!
I can't wait until I get to that number!

I just started my own blog about dividend growth investing and my path to financial freedom.

If you have a second check it out and let me know what you think!

Unknown said...

Hi DW,

Something that’s not entirely related, not sure how else to contact you. I like what you’re doing! I’m a beginner and wondering if it’s okay to start with “CFA.SI - NikkoAM-StraitsTrading Asia ex Japan REIT ETF”

Passive Income Guy said...

Wow, almost 22k is a very nice amount of dividends. Hope to get there soon myself. Keep up investing DW!!