I wanted to share some takeaways from the REITs Symposium on 4 June 2016. I especially like the sharing from David Kuo, who is from the Motley Fool. As usual, his advice was sensible and practical.
David rightly pointed out that many retail investors are impatient and like to look at their stock prices. He said it well that “we need to know the story behind the REIT. If you don’t … find out!!!” He explained that one needs to be comfortable with the REIT and understand the REIT before one invests in it. He also mentioned that he would not only look at the yield, but would also look at yield on cost, ie the amount of dividend you would receive for that year divided by your initial investment.
“The key to investment is not about the here and now … it’s about the future.” So, we need to be patient. “If you want to invest for the long term in REITs, ask yourself in ten years’ time, would we still be shopping in malls, working in offices and need hospitals”, he asks. If the answers are positive, do you think those types of REITs would still be around then?
Also, we need to understand the power of compounding. There is the rule of 72. If your investment gives you 2% per annum, you need a total of 36 years (72/2) to double your money. However, if your investment gives you 10% per annum, you only need 7.2 years (72/10) to double your money. REITs is one instrument that could help you compound your money faster with a possible and realistic projection of an average of 7% dividend and 3% capital growth.
On the question if REITs dividend is sustainable at 7%, David’s answer is that the dividend is high because not many people are buying REITs now. He posed a question, “If REITs is giving 7% dividend and another instruction is giving 3% dividend, which would you invest in (given that you have done your homework and both are good investments)? He added, “Do you wait for the REITs yield to fall to 3% before you invest in REITs?” I sure we all have an answer to that.
