Friday, September 7, 2012

Next bubble looming in dividend stocks?

Dividend paying stocks have been on a decline -  I mean ... the yield, of course. With interest rate around the world seems to remain low for at least until 2014, we could see people rushing for yield to get their returns and this would ultimately lead to yield compression. Remember during the GFC time when some yield on stocks would represent 20 - 25%? Now it is nowhere even half near that high. What we are looking at now is only between the range of 5 - 6% at best.

Rank – Capital Gains

REIT
Aug-12
Dec-11
Gain
FCOT
$1.120
$0.740
51.4%
Fortune Reit HK$
$5.630
$3.760
49.7%
AIMSAMPIReit
$1.305
$0.945
38.1%
K-REIT
$1.120
$0.830
34.9%
CapitaComm
$1.420
$1.055
34.6%
SuntecReit
$1.445
$1.075
34.4%
First REIT
$1.000
$0.760
31.6%
CDL Htrust
$2.030
$1.545
31.4%
MapletreeLog
$1.110
$0.845
31.4%
Cambridge
$0.620
$0.475
30.5%
StarHill
$0.735
$0.565
30.1%
MCT
$1.100
$0.850
29.4%
Ascendasreit
$2.360
$1.830
29.0%
CapitaRChina
$1.480
$1.150
28.7%
MIT
$1.360
$1.075
26.5%
AscottREIT
$1.250
$0.990
26.3%
LippoMapleT
$0.435
$0.350
24.3%
FrasersCT
$1.785
$1.440
24.0%
Sabana REIT
$1.045
$0.875
19.4%
CLT
$1.125
$0.950
18.4%
CapitaMall
$1.980
$1.700
16.5%
SaizenREIT
$0.158
$0.140
12.9%
PLife REIT
$1.920
$1.790
7.3%
FE-Htrust
$0.985
$0.930
5.9%
A-Htrust
$0.890
$0.880
1.1%
*REITS table on capital gains

Bubbleologists may be misreading the dividend frenzy. Both the anti and the advocates generally attributes the latest rush to dividends as a result of the persistent Euro crisis and recent hiccups in the China growth story. Fearing a global slowdown, the thinking goes, investors are shifting out of economy-sensitive cyclical stocks such as commodities (Noble, Wilmar, Olam, Sakari) and shipping (NOL, Cosco, YZJ) in particular into sectors like utilities, telecoms (Singtel, Starhub), REITS and consumer staples (SPH, etc) — considered defensive in nature because of their maturing business and steady cash-flow even in hard times and their commitment to paying a dividend.

Yet this defensive shift is but a small part of the story. What’s really driving the trend to dividends is the low yield environment that has almost everyone, not just the retirees now, so desperate to secure an income stream that they have begun moving up the risk ladder. With the 10-year Singapore bond yield trading at a record low of 1.3% and bank fixed deposits paying close to peanuts, the dividend bubble may yet takes its time to slowly form a bigger bubble and until then we will happily wait cause this bubble will not burst for a while now.
 

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