Dividends are a major draw for Singaporean investors.
Real estate investment trusts (REITs) stand out among the many choices due to their regular distributions. REITs are mandated to distribute at least 90% of their net profit, providing a source of reliable income.
That said, not all REITs are created equal.
To find REITs that can pay you for life, here are four factors to help narrow your search.
1. An underlying trend
The key to reliable income is sustainability.
Take ParkwayLife REIT (SGX: C2PU).
From its 2007 IPO prospectus, ParkwayLife REIT identified a key demographic shift: a projected fourfold increase in the elderly Asian population aged 65 and above by 2050.
Fast forward 16 years, and this prediction remains remarkably prescient.
According to the Asian Development Bank’s 2024 estimates, one in four people in Asia will be 60 years or older by 2050, with the elderly population projected to reach 1.2 billion.
This demographic trend is expected to lead to growing demand for healthcare services, particularly nursing homes and hospitals specialising in chronic and long-term care.
2. The right business model
A favourable demographic is a great start, but you also need a robust business model for the investment to work.
When ParkwayLife REIT debuted in the Singapore stock market, the trust’s initial portfolio comprised three Singapore hospitals, namely Mount Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital.
A key distinguishing factor lies in the structure of the REIT’s master lease agreements.
These contracts had a compelling feature: a virtually guaranteed annual rental increase of at least one per cent.
This unique provision provided a stable and predictable revenue stream.
More importantly, the favourable terms of the contract are expected to continue in the future.
ParkwayLife REIT renewed the master agreement in 2022, thereby guaranteeing a 2% to 3% rental increase between 2022 and 2025, followed by the similar advantageous rental structure it had previously.
To add to that, the REIT has since expanded its portfolio to include 60 nursing homes in Japan and 11 nursing facilities in France.
In essence, its solid Singapore base allowed the REIT to capitalise on global healthcare growth.
3. Track record of DPU growth
The most compelling evidence of a successful income investment strategy is the sound of dividends hitting your bank account.
ParkwayLife REIT exemplifies this trait, delivering robust dividend growth since its public debut.
Source: ParkwayLife REIT’s 2024 fourth-quarter earnings presentation
From 2008 to 2024, its distribution per unit (DPU) more than doubled, achieving an average annual growth rate of approximately 5% per year.
That’s not all.
Remarkably, this consistent growth trajectory persisted through challenging periods, including the Great Financial Crisis and the global pandemic.
This demonstrates the resilience of the REIT’s dividend stream
Get Smart: The final ingredient is YOU
Wait, weren’t there supposed to be four signs?
Indeed, the final and most crucial ingredient is YOU.
At its core, dividend investing is a straightforward concept.
Start by looking for a sustainable underlying trend.
From there, you focus on businesses with a proven track record of consistent dividend payments.
Ideally, these businesses should also demonstrate a history of dividend growth.
This combination – a compelling underlying trend, a robust business model, and a strong track record – provides a solid foundation.
However, one crucial factor often overlooked is TIME.
In today’s fast-paced trading environment, the key is to resist the urge to constantly buy and sell.
Instead, embrace a long-term perspective.
If you’ve identified a high-quality REIT, the most effective strategy is to keep holding the REIT, allowing management to execute their strategy and your investment, in turn, will compound over time.
With a long-term horizon, your dividend portfolio can become a valuable source of sustainable income.
This could be the fastest way to jump from a “newbie” investor to a seasoned pro. Our beginner’s guide shows everything you need to know to buy your first stock and beyond. Click here to download it for free today.
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Disclosure: Chin Hui Leong owns shares of ParkwayLife REIT
