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Forget CapitaLand Commercial Trust: Dividend Investors Should Look at DBS Group

Real estate investment trusts (REITs) are one of the most popular investment vehicles among dividend investors, mainly due to their stable income profile, as well as high profit pay-out ratio (at least 90% of net profit).

Moreover, investing in solid REITs like CapitaLand Commercial Trust (SGX: C61U), or CCT, is likely considered as a no-brainer among dividend investors.

Yet, if investors are looking for a dividend stock that will give them the best long-term return (at a reasonable level of risk), then buying CCT is probably not the best idea for now. In fact, I think DBS Group Holdings Ltd (SGX: D05) offers a much better deal now.

Show me the money

To start with, dividend investors are looking for investments that offer an attractive dividend yield. Generally, REITs offer better dividend yields as compared to most listed companies in Singapore.

In this case, however, CCT’s yield is actually lower than that of DBS Group. Let’s consider this.

At S$2.17, CCT is trading at a distribution yield of 4.0% (based on its 2018 distribution per share). On the other hand, DBS Group (at a share price of S$24.80 as of writing) is currently offering an attractive dividend yield of 4.8%!

Clearly, there’s much to like about the stability of CCT’s distribution track record, which is reflected in its low distribution yield. In this case, however, DBS Group seems like a better candidate to consider given its much higher dividend yield.

Show me more money

One of the positive points about REITs is their high profit pay-out ratio. Yet, such a high pay-out ratio also means that REITs’ underlying businesses tend to grow at a much slower pace (as compared to normal listed companies). This usually results in slower growth of the dividend, as well as share price (which we won’t touch on here).

In this case, let’s compare CCT and DBS Group in terms of dividend growth over the last decade. From 2009 to 2018, DBS group has grown its dividend per share (DPS) from S$0.56 cents to S$1.20. Comparatively, CCT has grown its DPS from 7.06 cents to 8.70 cents over the same period. The former was up by more than 100% while the latter increased by 23%.

From the above, we can see that dividend investors have enjoyed much better dividend growth over the last decade by investing in DBS Group. Going forward, in the absence of significant changes in its business economics, DBS Group will likely continue to grow its dividend at a faster pace than CCT.

Conclusion

Overall, dividend investors might want to forego CCT for now and have a look at DBS Group given its high dividend yield and growth track record.

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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of DBS Group Holdings Ltd and CapitaLand Commercial Trust.