Investing for dividends is a very rewarding activity.
Not only do dividends help to supplement the income from your day job, but they can also eventually act as a passive income source for your retirement years.
Dividend-seeking investors are in luck.
Singapore is well-known for being a REIT hub and offers a choice selection of REITs that you can invest in.
You can liken it to a buffet where you are spoilt for choice.
REITs should form an integral part of a dividend investor’s portfolio.
Here’s why this asset class is so effective in boosting your passive income flow.
REITs as effective dividend vehicles
REITs are mandated by law to pay out at least 90% of their net profit to enjoy tax breaks.
This regulation means that REITs need to pay out the bulk of their profits as distributions, thus making them effective income instruments.
Many REITs have displayed resilience and a great track record for raising their distributions over time.
As a REIT grows its asset base, its distribution per unit (DPU) should also grow in tandem.
Some REITs can also choose to grow organically through positive rental reversions or by engaging in asset enhancement initiatives to spruce up their properties.
A persistently rising DPU means that you can enjoy higher distributions even while holding on to the same number of units in the REIT.
Take Parkway Life REIT (SGX: C2PU) for instance.
The healthcare REIT has enjoyed an uninterrupted increase in recurring DPU since its IPO in 2007.
DPU more than doubled from an annualised S$0.0632 in 2007 to S$0.1379 in 2020.
If you had invested in the REIT back in 2007, your investment would also have more than quadrupled.
Hence, you’d be enjoying both capital gains and a higher level of dividend income.
Some REITs, such as Mapletree Logistics Trust (SGX: M44U), have demonstrated their resilience during this pandemic.
For its latest quarter, the REIT managed to grow its DPU by 5.7% year on year.
Investors who kept their faith in the REIT will continue to receive attractive dividends even though the Singapore economy fell into a recession last year.
Another attractive aspect of REITs is their longevity.
As REITs are commercial vehicles with bundled real estate assets within their portfolios, they can carry on in perpetuity.
Take Suntec REIT (SGX: T82U) for example.
The retail and commercial REIT launched its IPO back in December 2004 with a Singapore-centric portfolio of assets that included Suntec City mall and Suntec City Convention Centre.
Fast forward to today, and the REIT continues to pay out quarterly distributions.
Its portfolio has also expanded to include Australian and UK properties, thus helping to diversify its income sources.
Having been an investor in Suntec REIT since its IPO, I have been receiving regular quarterly dividends for the last 17 years.
Another REIT that has been paying steady dividends for over a decade is CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT.
CICT resulted from the merger of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust back in early 2020.
CMT was Singapore’s first property trust, launched way back in July 2002.
An investor who held on to CMT since its IPO would have received regular distributions for nearly two decades!
These two examples show that there is no limit to how long a REIT can continue paying out distributions.
If nothing goes wrong, you could very well still be receiving distributions from well-managed REITs two or three decades from today.
Get Smart: Reinvesting your distributions
Receiving distributions is just one part of the equation in building up your passive income stream.
Ideally, you should go about reinvesting these distributions into these very same REITs, increasing your stake in them over time.
This process of compounding enables you to own larger stakes in solid REITs over time.
It’s a double bonus when the REIT also declares a higher distribution.
The combination of owning more units and an ever-increasing DPU means you can accelerate the build-up of your dividend stream.
REITs are, therefore, effective vehicles that you can harness to grow your dividend income.
By reinvesting your dividends and even adding more capital to choice REITs, you can look forward to a blissful retirement.
If you could only buy one of these dividend stocks in August, which would you pick?
The pandemic survivor, Keppel DC REIT (SGX: AJBU)..
The property mogul, Frasers Logistics & Commercial Trust (SGX: BUOU)…
Or the blue chip darling, DBS (SGX: D05)?
This is the challenge we created for ourselves this month.
We asked the public to choose 3 stocks for us.
And we will be buying one of them.
Now, it might sound crazy to stake our money on the public’s opinion. But we’ve done our homework.
And on 29 of July, you’ll be able to watch our analyses live on a webinar.
We’ll break down each stock’s strengths, weaknesses, and potential to add thousands of dollars in our accounts.
We’ve never done this before, so you’re in for a treat. If you have any interest in dividend stocks, this webinar is for you.
Disclaimer: Royston Yang owns shares of Suntec REIT.