S-REIT as a Durian Tree

Info 0003_REIT as a Durian Tree

Many people have asked REIT-it, “Is this a good time to buy into S-REITs?”

While this is a valid question as everyone would like to buy things at its cheapest point, the truth about investing is that no one can predict where the market is heading next.

S-REIT is a suitable investment vehicle for retirement planning

The reason why S-REITs is an attractive investment vehicle is partially due to regulations that S-REITs have to distribute at least 90% of distributable income to its investor. S-REITs hence is able to provide investors with regular cash flow to meet some of their expenses along the way. Imagine having $1 million vested in S-REITs by the age of 50 and having $50,000 every year coming your way without having to do anything. This is the meaning of passive income which is the core concept of retirement planning: Money coming into our pockets without us having to work for it. 

High dividend yield does not equate to good S-REIT investment

Some would then argue that their main criteria for selecting an S-REIT would depend solely on the dividend yield (higher yield = better S-REIT investment). However, this is a common misconception as higher dividend yield (i.e. 8% vs normal 5%) may mean the investment entails higher risk (i.e. dropping share price) and may not pay as much on a consistent basis.

Illustrating this from a durian tree perspective. Imagine that you are choosing a durian tree to buy, would you choose:

a) Tree A: Gives you a maximum of 8 durians a year but cannot guarantee that 8 durians can be harvested every year

b) Tree B: Gives you 5 durians consistently for all years

From a retirement planning perspective, Tree B which gives CONSISTENT “payout” of durians  would be more suitable.

Conclusion: S-REIT investment is good all year round if we ascertain the CERTAINTY of the dividend payout

The subsequent articles will seek to answer the question of HOW DO WE DETERMINE THE CERTAINTY OF A DIVIDEND PAYOUT. Stay tuned.

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