I am closing in on a decade of investing in the stock market and along the way, I have been fortunate enough to pick up some lessons. Today, I would like to share a story of a real estate investment trust (REIT) that has done well for me – one that currently gives me a 16% dividend yield on my cost basis. I’m not here to toot my own horn. It is my hope that the Foolish reader is able to take away a couple of lessons from my story of a REIT, recessions, and dividends, dividends, dividends. An iron-clad…
I am closing in on a decade of investing in the stock market and along the way, I have been fortunate enough to pick up some lessons. Today, I would like to share a story of a real estate investment trust (REIT) that has done well for me – one that currently gives me a 16% dividend yield on my cost basis.
I’m not here to toot my own horn. It is my hope that the Foolish reader is able to take away a couple of lessons from my story of a REIT, recessions, and dividends, dividends, dividends.
An iron-clad stomach helps
“The key organ for investing is the stomach, not the brain”
– Peter Lynch
Some among us may remember the 2007-2009 Global Financial Crisis.
From the graph below, you may be able to spot the all-time high for the Straits Times Index (SGX: ^STI) which occurred in mid-October 2007. From a peak of 3,906 points, the Straits Times Index proceeded to fall by a gut-wrenching 63% when it eventually bottomed out at 1,455 points in early March 2009. As you can see, the global financial crisis certainly has made its mark on Singapore’s stock market.
Source: Yahoo Finance
Although the experience was harrowing to say the least, the severe drop in the stock market also presented great opportunities for the Foolish investor. On 27 April 2009 (fairly close to the bottom), I was able to pick up units of Parkway Life REIT (SGX: C2PU) at $0.73 apiece.
As a brief background, Parkway Life REIT currently has ownership over three local private hospital properties. In addition to that, the REIT also has stakes in 43 healthcare-related assets in Japan and strata-titled unit and lots in a Gleneagles medical centre in Malaysia. You can learn more about the REIT in here and here.
Although I was fairly new to the world of stock market investing at that point in time, I reasoned that hospitals will continue to be needed in both good times and bad times. This turned out to be true in hindsight. We can see from the graph below that Parkway Life REIT was able to grow its revenue steadily from 2008 through 2014.
Source: Parkway Life REIT’s earnings reports
Eventually, this sterling performance was noticed by the stock market. As of its closing price of $2.32 yesterday, Parkway Life REIT’s units have increased by 218% from my cost basis of $0.73.
But wait, there’s more.
Don’t forget your dividends (a rising dividend can do wonders)
At the point of my purchase, Parkway Life REIT had a distribution yield of 9.4% (based on a trailing distribution per unit of 6.83 Singapore cents).
As good as Parkway Life REIT’s yield was at that time, the story gets even better.
The rising revenue from the REIT’s properties (see the graph above) also trickled down to the net property income (NPI). And as you can see below, the NPI for the REIT had tracked its rising revenue.
Source: Parkway Life REIT’s earnings report
The rising NPI is what provides the raw fuel for a rising DPU. From 2009 to 2014, Parkway Life REIT’s DPU had risen close to 50% in total. You can see the progression of the REIT’s DPU in the table below.
|Year||Parkway Life REIT’s DPU
Source: Parkway Life REIT’s earnings presentation
In all, the DPU payouts have added around 62 cents (or 85% of my cost basis of 73 cents) to my overall returns. With patience and a long term view, the table above shows how powerful a rising dividend can be in contributing to your overall returns.
At the moment, Parkway Life REIT’s trailing DPU of 11.91 cents would mean that my investment is yielding 16.3% on my cost basis of 73 cents per unit.
For those who have followed along thus far (thank you for that!), you might see why I view market crashes as opportunities rather than risks. As my US colleague Morgan Housel likes to say:
“The funniest thing about markets is that all past crashes are viewed as an opportunity, but all current and future crashes are viewed as a risk”
My experience with holding Parkway Life REIT for the past six-plus years has convinced me that the best returns from the stock market can come from both an iron-clad stomach and the act of tenaciously holding onto stocks for the long term. As such, I would urge fellow Fools to consider doing the same.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Parkway Life REIT.