Monday, February 4, 2019

Happy Lunar New Year!

A Happy Lunar New Year to all my blogger friends and readers! Wishing each of you good health, strong relationships and prosperity! HUAT AH!

Just done with my assignment. Will be splitting my time between studying for my papers, blogging, and working on my side project (which will be revealed in due time).

Cheers!
UN

Tuesday, January 1, 2019

Year 2018 Portfolio Performance and Dividend Income (Part 2)

Alrighty! The markets have closed for 2018 and it is time to tabulate my performance and continue the second part of my Year 2018 Review post. For those who missed out on part 1, you can find it here.

Net worth breakdown
There has been some changes to my net worth breakdown compared to the previous quarter. Equity allocation has increased from 35% to 39% (in light of all the nibbling I did recently). Cash allocation fell from 40% to 37%. The cash portion would have looked far worse had it not been for my bonus. Precious metals dropped from 25% to 24%.


Net Worth Breakdown

As per before, "the pie chart depicts the breakdown in my net worth across the various asset classes in percentage (pie chart neither includes my CPF nor my emergency fund). To be conservative, I computed my precious metals allocation at spot price even though I am holding everything in physicals."

Equity Performance

For my SGD-denominated portfolio:
Returns for Year 2018: -7.78%
Annualized returns since portfolio inception (March 2015): 6.48%

For my USD-denominated portfolio:
Returns for Year 2018: -3.59%
Annualized returns since portfolio inception (March 2016): 5.62%

The above computations include equities only. It does not include cash drag and precious metals drag.

Thoughts on Performance
Strangely, I am very satisfied with my returns despite having negative returns for both my SGD and USD-denominated portfolio in year 2018. The market has been red and my portfolios were not spared. Hence, what I am experiencing is pretty normal.

When I look back at my multi-year performance, I think I am doing alright in my investment journey. 2017 had been a good year and I took some profits off the table. In 2018, I continued to divest positions that I have superficially entered in as well as fundamentally weaker counters. Hence, most of my portfolio losses were realized in the early part of 2018. Had I not done so, my returns for year 2018 would be much more redder.

In life, you win some and you lose some. So far, I managed to win slightly more than I lose. This is a good sign and I hope this would persist.

As I type this post, I am reminded of what I have told myself before. The talking heads have been droning on and on about a stock market collapse. I have personally done what I can by eliminating the counters which I am unsure of or are fundamentally weak. What's left are the counters which I am comfortable holding (of course comfort comes in various degrees depending on the particular stock in question). As I don't foresee myself going completely cash, I would need to have the mental fortitude to ride it out with my current holdings and any potential stocks that I would be buying before the crash happens. I am okay with this.

Insurance
My insurance policies lacked a Critical Illness plan. I went around looking for a plan that has an option to add a Critical Illness rider and I came across the MINDEF and MHA Group Term Life plan (with a CI rider option) by Aviva. The term life portion has a fixed premium while the CI rider premium escalates with age. I have requested for a quote from Aviva and this is still pending.

Studies
Imagine my horror when the sample examination paper for one of my modules tested something that is seemingly out of the syllabus. I will be deferring said module to the following year to brush up on this out-of-syllabus topic before taking the exam.

In terms of scheduling my study time, more work needs to be done in this area. Generally, weekends are predesignated for studying and I have completed the first run-through of the entire textbook for one of my modules within 2 months from course commencement. And that is just for readings, it does not include assignments. Multiply this by two (since I am taking two modules) and time is sorely lacking. Guess I will be allocating some weekday nights to studying from now on.

Emergency Fund
With higher interest rates for the Singapore Savings Bonds (Jan 2019 issue), it finally motivated me to close a low-interest savings account that I had. Part of the proceeds went into our shared emergency fund while the rest went into......

Mother's Retirement Fund
....the Singapore Savings Bonds (Jan 2019 issue) for my mum's retirement fund. It's small, but a step forward nonetheless. On-and-off, I have been thinking of what ETFs or stocks should go here. At the moment, I think I will settle for STI ETF and Hongkong Land.

Regular readers will know that I am partial to Hongkong Land for its recurring cash flow from its investment properties. Coupled with its conservative management, slow (but steady!) dividend growth, and not being a "hot stock", it is a decent choice. My concerns at the moment is the USD/SGD exchange rate (which affects the dividends) and if the day comes when business-as-usual (BAU) is no longer BAU.

Hypothetically, my mother's retirement fund will consist of SSBs, with stocks to be purchased by me in a market crash and then transferred to her personal CDP account. That's all for now, I guess.

Current Holdings
After converting all my USD holdings to SGD, the following table shows the percentage of each stock from only the equities allocation of my net worth (arranged in descending order).

Stock Holdings

Moving forward, I intend to add on other counters such that the role of AIMSAMP REIT and Singtel becomes more diminished in my portfolio. Ironically, Abbott Laboratories, who occupies the bottom position, is almost a double-bagger stock. LOL!

Investment Strategy
I intend to continue what I am doing, which is to predominantly invest for dividends and dividend growth. In light of the market turmoil, I will focus more on large-cap stocks which have the staying power to survive an economic downturn.

My preference is to have a large number of stocks in my portfolio to reduce reliance on any particular stock or group of stocks for dividend income. I think I will elaborate more on a future post about my investing style.

As we are on the topic of my investment style, I have signed up for the investment newsletter by US blogger Dividend Growth Investor. This is not a sponsored post. The rationale is to learn of new US dividend growth stocks that I have not heard of before, try to second-guess his stock picks for the following month (to see whether my picks converge with his choices), and market time into dividend growth stocks. I don't think that is the "right" way to use his newsletter, but that's how it is for me.

As always, I am partial towards REITs, consumer staples, healthcare, and (some) utilities. It might look to be a good time to add to consumer staples if the decline in the sector continues.

That's all. Thanks for reading!

Sunday, December 30, 2018

Year 2018 Portfolio Performance and Dividend Income (Part 1)

Goodbye 2018! Hello 2019!

I must be in the flow today. I can't stop typing as the words just come to me. As the post is getting lengthy, I'll be splitting it into two posts.

Dividend Income


Q4 2018 SGD Dividend Income

Dividends received from my SGD-denominated portfolio in Q4 2018 fell, when compared to the same quarter last year. Most likely, this is due to the effect of pruning quite a number of counters from my portfolio which I had started 2 quarters ago. I expect increases in my dividend income for the coming year once the new additions to my portfolio start contributing their part.

Q4 2018 USD Dividend Income

Dividends received from my USD-denominated portfolio increased in Q4 2018, when compared to the same quarter last year. I have been allocating more cash, albeit slowly, to my USD-denominated portfolio. The US market has fallen quite a bit and I am initiating new positions and adding to my existing positions slowly if the market continues to slide further. The main thrust of my USD-denominated portfolio is on dividend growth.

I get this question often, so I hope to address it here. The framework that I adopt in my equities allocation involves selecting higher-yielding SG income stocks with lower dividend growth potential and complementing it with lower-yielding US dividend growth stocks with higher dividend growth potential. So far, this framework works fine for me. Cash flow from SG stocks could be used to purchase additional cash flow from SG stocks or US dividend growth stocks whose dividend increases would materialize somewhere in the future.

Yes, the 30% dividend withholding tax does stick out like a sore thumb. The seemingly punitive withholding tax doesn't look that bad after all when said US dividend growth stocks generate upper single digit or double digit growth and dividend growth. I am cherry picking here, but did you know that a certain US dividend aristocrat had a sustainable 28% dividend increase this year? How many SG income stocks could grow their dividends around low-to-mid single digit each year and pull out a tremendous sustainable 28% increase in a particular year? Please share with me if you do know of any.

Unfortunately, there is a difference between theory and praxis. I think quite a few of my US dividend growth stocks which I have selected turned out to be duds by having their dividend growth streaks broken. Second, the Singapore market do have their dividend growth stocks as well. They do not possess the kind of insane dividend growth that their US counterparts possess, but dividend growth is still dividend growth. It is a failing on my part to assume that they do not exist and my obstinacy to not challenging the assumption I had as well as my lack of meticulousness in scouring the SG market to confirm/disconfirm my thesis.

Oh well. I will improve from here.

Transactions
From this quarter onwards, I will be including a valuation metric to each of my purchase transactions. This is mainly for my own record keeping.

I initiated a new, smallish position in Kraft Heinz at TTM PE of 15.35 prior to their Q3 earnings. I had some qualms regarding my decision as Kraft Heinz's payout ratio is on the high side and the management had been silent regarding the much-expected dividend increase in their Q2 earnings. Still, I decided to go for it, foolishly believing that Warren Buffett and 3G Capital will work their magic and help the company to resume growth. When the supposed dividend increase failed to materialize for the second time round following their Q3 earnings, the price crashed by 10%.

I added to my position in Hongkong Land at a PB of 0.37 when it fell to its 52-week low. Nothing much to add here. Regular readers would know that I hold Hongkong Land for its recurring cashflow from its investment properties.

I added to my position in SATS twice in this quarter. Once at TTM PE of 20.55 and another time at TTM PE of 20.51. The rationale is to diversify my income sources away from REITs, which still form a large portion of my equity allocation. As SATS is still at the upper end of its valuation (by PE), these two additions are kept small in size as part of my risk management plan (despite SATS' horrible technicals lately). SATS was also the counter I used in my maiden experiment with leverage (see section on "Leverage" below).

I sold my entire stake in Yeo Hiap Seng at a 25% loss. Thanks to position sizing, the impact was minimal. There are two lessons from this episode. First, blanket statements such as "consumer staples are defensive/recession-resistant" and "people need to eat and drink" need to be qualified. Consumer staples need to be evaluated both quantitatively (trend in their various metrics) and qualitatively (are their products relevant to the modern day consumer, etc) against each other to identify the better performing ones. Second, I purchased Yeo Hiap Seng as a consumer staples stock. That was my somewhat flimsy investment thesis. Subsequently, I learned of Yeo Hiap Seng's freehold properties and, gradually, engaged in mental gymnastics to accommodate "asset play" as part of my investment thesis. I have been aware of this for quite some time, but it isn't until recently that I acted on it.

I initiated a new small position in DBS to gain additional exposure to the financial sector. I have been avoiding the financial sector for fears that they will be hit the hardest in a market crash. Ironically, my obstinacy to ignore Singapore's banking sector for the above reason made me blind to the fact that DBS exhibits some form of dividend growth.

I added to my position in First REIT when the market was pessimistic about it. I will be observing how the Lippo Karawaci-First REIT tenancy issue works out.

I initiated a new small position in BlackRock Inc at TTM PE of 13.84. Thanks to the falling market, BlackRock has lost about 36% from its peak. Woot! :D Market leader, consistently high net margins, improving ROE, increasing top and bottom line, increasing dividends, a sustainable payout ratio, decreasing share count, and........in a time of cheap debt and crazy corporate leverage, BlackRock has an almost pristine balance sheet. What more could I possibly want? During the GFC, BlackRock had the financial strength to increase their dividends but did not do so. Instead, it maintained its dividends and, as a result, lost its dividend growth streak. Currently, BlackRock spots a dividend growth streak of 9 years.

I initiated a new small position in Frasers Logistics & Industrial Trust at a P/NAV of 1.07 using balance transfer. I have been looking for opportunities to initiate positions in large-cap REITs and the recent fall in price allowed me to do so. It is also encouraging to note that Frasers Logistics & Industrial Trust has demonstrated some form of dividend growth thus far based on its limited track record.

I added to physical silver in this quarter as well.

Leverage
I signed up for my first credit card this quarter. The supposed end goal is to build up my non-existent credit rating and, from there, to employ balance transfer to leverage up and buy shares.

I've learned this from a friend who frequents the investment blogosphere. He has used this method effectively during the GFC to build up a sizable investment portfolio. This form of leverage is "safer" as no margin calls are involved. To play it cautious, I have borrowed amounts that I could immediately afford to pay back.

For those who are unfamiliar, balance transfer is a type of credit facility offered by credit card companies to help indebted individuals to clear their debt. The general idea is to borrow at 0% interest for a given period of time (e.g. 6 months, 1 year, etc) to pay back your other debts. There is an administrative charge to borrow at 0% interest which has to be paid upfront.

Instead of borrowing using balance transfer to pay down debts, I used the proceeds to purchase shares. As there is an administrative charge, the shares to be purchased has to yield higher than the administrative charge for it to make sense. Obviously, using the balance transfer method for REITs will be more appealing as the spread between REIT yields and the administrative charge is much wider. In addition, REITs pay out their distributions on a quarterly basis. This will help the user to pay down the balance transfer debt faster compared to non-REITs which pay out semi-annually. This process can be repeated to speed up the process of accumulating assets. Second, the user would have otherwise missed out on a few distributions if he or she had to save up for a couple more months to purchase the REIT.

The successful use of balance transfer to buy shares is underpinned by two critical assumptions. One, the investor has to be a good stock picker. There is no point in accumulating mediocre assets that generate decreasing cash flow or have a higher propensity to result in capital losses. In this regard, I would fail as my stock picking skills is so-so. Second, valuation still applies. One cannot simply anyhow whack regardless of valuation.

In terms of overall portfolio risk management, I have came up with the following provisional guidelines with regards to the use of balance transfer for stock purchases:

- Only use Balance Transfer for the purchase of Large-cap stocks (higher probabilities of large-cap stocks surviving an economic downturn)
- Rotate between various stocks (prevent portfolio from being too skewed to a particular stock/particular group of stocks)
- Set a time gap between each use of balance transfer (prevent myself from being too trigger-happy). I have not decided on a suitable time gap yet, but I am thinking of setting a 1 month gap.

Administrative Updates
As mentioned in my previous quarter's update, I have created a trading account to trade Hong Kong stocks and another trading account to trade Singapore stocks (in the event that my main Singapore trading account fails when everyone is trying to exit their positions in a market crash). Back then, follow-up actions include creating a Malaysia trading account and a Denmark trading account to trade Malaysian and Denmark stocks, respectively.

In this quarter, I have opened a Malaysian stock trading account while the Denmark stock trading account opening remains undone.

Okay, this post is getting quite lengthy. I shall stop here and continue in another post. In the next post, I will touch on my net worth breakdown, my returns for the year, some miscellaneous stuff (insurance coverage, work, studies, emergency fund, mother's retirement fund), my stock holdings, and my investment strategy. That's all for now. Thanks for reading!

Wednesday, December 12, 2018

Staycation at Yotel Singapore

There has been some changes to the flexible benefits policy at my workplace. The number of categories that we could spend on have been restricted to only a select few, with staycations being one of them. After going for my first staycation, it's now safe to say that I've caught the staycation bug! It is good to take a well-deserved break, to empty my mind, and to live in the present. Also, it is fun being a tourist in Singapore.

Recently, I spent some of my flexible benefits at Yotel Singapore. By the way, this is not a sponsored post.

Yotel Singapore is a newly-opened hotel in the heart of Orchard road. Their main draw is their futuristic theme and their guest service robots, Yoshi and Yolanda. Families with kids will definitely enjoy dialing up Mission Control (reception) for either Yoshi or Yolanda to deliver items such as towels and water bottles to your room. No, I did not spam requests, lol; I only tried it out once. Apparently, Yolanda occasionally sings to hotel guests after a delivery request, but I was not lucky enough to hear her sing. :(


Befitting its futuristic theme, you could self check-in at one of the counters in the lobby. Fill in your details, swap your credit card, and you are able to create your own room key on the spot. Kudos to the front desk staff who came to greet and welcome us.


We stayed in the Premium Queen View room which was located on the higher floors with good views of Orchard road. The room was slightly smaller compared to your typical hotel rooms. Despite its small size, the space is efficiently used. The rooms come packed with a fridge, safe, iron, ironing board, and hair dryer. The bed is adjustable and you can adjust the angle to suit your comfort level.


The bedroom area is separated from the wash area by frosted glass.


As we were located on the higher floors, we had a good view of Orchard road. Unless you want your net tangible assets to be in the public's eye, do remember to draw down the blinds while using the wash area.


At level 10, we have the Komyuniti Bar and Restaurant, the gym, and the pool area.




A pity I didn't managed to get good shots of the breakfast spread though. Only one came out "decent."


I enjoyed the KOMpliment (the Yotel signature cocktail) that consists of butterfly pea flower-infused gin, fresh lemon, violet liqueur, egg white, hibiscus perfume & orange bitters.


Until next time folks. My staycation watchlist has been firmed up and I am looking forward to my next adventure. :)

Tuesday, October 30, 2018

Applying the Chowder Rule metric to S-REITs

In today's post, I will not show you where to get the tastiest, most value-for-money Chowder in Singapore. That is.......the responsibility of food bloggers.

....Not today's subject

Instead, I will introduce you to the Chowder Rule, so named after Chowder, a Seeking Alpha contributor. I will be lifting several paragraphs from an article by Sure Dividend on the same topic:

The Chowder Rule is a rule-based system used to identify dividend growth stocks with strong total return potential by combining dividend yield and dividend growth. The Chowder Rule is applied in a differentiated manner depending on the type of stock in question. The criteria can be found below:

Rule 1: If a stock has a dividend yield greater than 3%, its 5-year dividend growth rate plus its dividend yield must be greater than 12%.

Rule 2: If a stock has a dividend yield less than 3%, its 5-year dividend growth rate plus its dividend yield must be greater than 15%.

Rule 3: If a stock is a utility, its 5-year dividend growth rate plus its dividend yield must be greater than 8%.

For those who are interested in the details (its underlying philosophy, when to use it, its limitations, etc), you can read more of the Chowder Rule here.

The first thought that I had when I came across the Chowder Rule a couple of weeks back was to apply the metric to S-REITs. The rationale is to add another tool to my investment toolkit to help me differentiate whether does a particular REIT make the cut.

As you can see, all 3 rules do not make explicit allowances for REITs. Hence, I took the liberty to select Rule 3 and apply it to S-REITs (based on the assumption that REITs and utilities share similarities such as being higher-yielding, lower growth/dividend growth instruments).

I then realized that there might be certain REITs who could "pass" the Chowder Rule 3 of 8% just for being higher-yielding. Perhaps, in our situation, we could use the Chowder Rule not as a binary measure (e.g. above 8% = good; below 8% = bad), but as a a relative measure (e.g. REIT A has a higher score than REIT B).

In the calculations that follow, annual dividends will be defined as the total dividends distributed by any given REIT in their financial year, not the calendar year. Special dividends, if any, will be included in the computation of dividend growth. Data will be taken from the most recent annual report. Current dividend yield will be taken from the REIT Data site at the time of this blog post (30 October 2018).

With d referring to total dividends distributed in the financial year and y referring to the current year, let 5-year dividend growth rate be:

((dy - dy-1)/dy-1+(dy-1 - dy-2)/dy-2+(dy-2 - dy-3)/dy-3+(dy-3 - dy-4)/dy-4+(dy-4 - dy-5)/dy-5)/5

I won't be calculating the Chowder Rule for all the REITs; I will only be looking at a select few REITs.

AIMS AMP Capital Industrial REIT
5-year dividend growth rate: -1.12%
Current dividend yield: 7.741%
Chowder Rule value: 6.62%

Ascendas REIT
5-year dividend growth rate: 3.08%
Current dividend yield: 6.272%
Chowder Rule value: 9.35%

Capitaland Commercial Trust
5-year dividend growth rate: 1.56%
Current dividend yield: 4.767%
Chowder Rule value: 6.33%

Capitaland Mall Trust
5-year dividend growth rate: 3.42%
Current dividend yield: 5.264%
Chowder Rule value: 8.68%

First REIT
5-year dividend growth rate: 3.39%
Current dividend yield: 7.142%
Chowder Rule value: 10.53%

Frasers Centrepoint Trust
5-year dividend growth rate: 3.56%
Current dividend yield: 5.586%
Chowder Rule value: 9.15%

Keppel REIT
5-year dividend growth rate: -5.92%
Current dividend yield: 5.062%
Chowder Rule value: -0.86%

Lippo Mall Trust
5-year dividend growth rate: 3.66%
Current dividend yield: 14.044%
Chowder Rule value: 17.70%

Mapletree Commercial Trust
5-year dividend growth rate: 6.94%
Current dividend yield: 5.644%
Chowder Rule value: 12.58%

Mapletree Industrial Trust
5-year dividend growth rate: 4.94%
Current dividend yield: 6.194%
Chowder Rule value: 11.13%

Mapletree Logistics Trust
5-year dividend growth rate: 2.16%
Current dividend yield: 6.252%
Chowder Rule value: 8.41%

Parkway Life REIT
5-year dividend growth rate: 5.63%
Current dividend yield: 4.773%
Chowder Rule value: 10.40%

Sabana REIT
5-year dividend growth rate: -17.65%
Current dividend yield: 8.329%
Chowder Rule value: -9.32%

Starhill Global REIT
5-year dividend growth rate: 0.99%
Current dividend yield: 6.977%
Chowder Rule value: 7.97%

Make what you will of these figures. Have fun!