First, I like to wish all my Chinese readers a very Happy New Year, 祝你 恭喜发财, 万事如意, 身体健康!
A week has passed since the shocking week and guess what, the US stock markets have turned around and now marched steadily and confidently forward despite the 10 years Treasury yield rising to recent record levels which was the trigger for the sharp decline in the first place. S&P 500 had risen 151 points or 5.9% from the recent trough to close at 2732 points, just 90 point shy off the level before the decline on 2 Feb when the market was in such panic state. How fickle can investors like us be? Well, the key is always to be prepared for an opportunity like this and stay invested through the troughs (and the peaks too).
It has been a while since I last blogged about “reversion to mean of dividend yield”, particularly the Reits. If you have missed the earlier blogs, you can find them at the end of this. The ever rising share prices for the last few months meant that the dividend yields were at rock bottom and in fact, many were at the lowest level in the last 3 years.
However, the recent decline in the Reits’ share prices have started to move the dividend yield of some Reits closer to the mean dividend yield for the last 3 years and some even moving to the middle of the top half of the range for dividend yield. I have typically used 3 years as a benchmark as it is reasonable long and yet not that long to carry some of the legacy burden or opportunistic gain from the past to distort the range of dividend yield.
Just to mention some that are starting to look interesting:
(1) Capitaland Mall Trust – $1.95 – 5.7% yield – @69% of the range between 4.9 to 6.1%
(2) SPH Reit – $0.99 – 5.6% yield – @49% of the range between 5.1 to 6.1%
(3) Starhill Global – $0.73 – 6.5% yield – @49% of the range between 5.7 to 7.3%
(4) MapleTree Commercial – $1.53 – 5.9% yield – @59% of the range between 4.9 to 6.6%
(5) SoilbuildBusiness Reit – $0.645 – 8.9% yield – @65% of the range between 7.5 to 9.6%
I have been practising this approach to start accumulating the shares of some high quality Reits when their current dividend yields rise above the 50% point into the top half of the range. To have a higher dividend yield, either the share price declines or the distributed dividends increases. To me, both are signals to start accumulating. The former plays on the fickleness of market as the share prices move up and down (without any underlying reason) while the latter reflects an increased confidence by the management of their cash generation capability and their share prices have not caught up with it yet.
What I have not mentioned yet is that I will still do some proper due diligence to understand if there is any reason for the change, any major shift in their industry, whether the company is still on sound footing and if the dividends can be sustained going forward. You should do the same too if you are interested to use this approach.
Based on the above, I am starting to accumulate (1), (2) and (3) slowly again. 🙂
Hope you find this useful.
Have a great investment week ahead
- Using Reversion to Mean for Reit InvestmentsUsing Reversion to Mean for Reit Investments
- Reversion to Mean using Net Asset Value