Investors who invest mainly for yield understand the power of a steady stream of dividends, as it provides substantial passive income to boost retirement savings. The chase for yield may sometimes lead investors into value traps because not all high-yielding stocks are great investments.
“High” in this case may be defined as dividend yields in the range of 8% to 10%, “fairly high” yields are between 5% to 7%, while lower yields are in the range of 2% to 4%. I personally look for companies or REITs with sustainable dividend yields, as this is important if you have a long-term investment horizon. The frequency of dividend payments is also important as it can accelerate the process of compounding.
Given that, here are three shares that can massively increase your dividend flow and their sturdy business models suggest those yields are sustainable.
ESR-REIT (SGX: J91U) invests in industrial properties across Singapore. Its portfolio contains 56 properties with a gross floor area of 14 million square feet, valued at around S$3.02 billion as of 30 June 2019. These properties span a wide range of industrial property sub-types, including business parks, high-specs industrial, and general industrial.
The REIT has reported a steady set of earnings for its Q2 2019, with distribution per unit (DPU) flat at 1.004 Singapore cents. At the last traded price of S$0.52, the REIT’s trailing dividend yield was 7.7%. The REIT has no major refinancing requirements for the remainder of 2019 and it also recently announced a DPU-accretive acquisition of 48 Pandan Road.
ESR-REIT also has two asset enhancement initiatives (AEI) planned for 7000 Ang Mo Kio Avenue 5 and UE BizHub East, both of which are expected to deliver a yield on cost of around 9%.
The REIT has also established a strategic partnership with PTC Logistics to provide real estate solutions for its business expansion. These initiatives will enable the REIT to report resilient distributable income and also offer decent upside potential for future DPU.
2. Singapore Exchange Limited
Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s sole stock exchange and operates a platform for the trading of securities. The bourse operator operates four main divisions: fixed income; currencies and commodities (FICC); equities, data, connectivity, and indices (DCI); and global sales and origination (GSO).
SGX recently announced a realignment of its business divisions to streamline the group and prime it for further growth, and it has been building its capabilities and breadth of products offered in its derivatives division. Derivatives will form the new growth engine for the group and volumes have been hitting new highs every quarter.
The group is also busy with other initiatives such as launching a portfolio compression service for listed derivatives and investing in financial technology firm SmartKarma to boost its investment research capabilities.
SGX currently pays a quarterly dividend of 7.5 Singapore cents for a total annual dividend of 30 Singapore cents. At the last traded price of S$8.17, the shares offer a dividend yield of 3.7%. Though this may not seem high, the dividend has room to grow in future years and I am confident it is sustainable.
3. Keppel-KBS US REIT
Keppel-KBS US REIT (SGX: CMOU) is an office REIT with properties located in key growth areas of the United States. Its portfolio consists of a mix of 13 quality freehold properties across seven markets in the US, with a total aggregate net lettable area of around 4.3 million square feet.
I had previously written about the merits of this REIT as it has characteristics that outshine other US-based REITs, and it also offers an annualised 7.7% dividend yield based on the last traded price of US$0.78. Office properties are a resilient asset class and see consistently strong demand, which makes me confident that the REIT is able to sustain its dividend payout.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited. Motley Fool Singapore contributor Royston Yang own shares in Singapore Exchange Limited.