My investment strategy

I am a dividend investor. My strategy is to buy good paying dividend stocks or reits, keep them for a very long period of time while receiving dividends over a period of time. The dividends received are then accumulated and reinvested into the dividends stocks again. I have divided my holdings to different groups as follows:

1) REITs

This is one of my biggest investment allocation. REIT stands for real estate investment trusts. REITs invest in and own properties. The rental earned from these properties are then distributed to unit holders as income distributions. In Singapore, REITs have to pay out at least 90% of their rental income. Due to this, the income distribution income is quite attractive. REITs can be categorized by the property type (E.g. industrial, retail, commercial). 

yield

Based on www.reitdata.com, the average yield for REITs is currently 7.4%. Industrial REITs typically give higher return. One of my favorite is AIMs REIT; it is currently giving the highest yield of around ~9.7%.

frequency of payout

Most of the REITs payout are on a quarterly basis. Some of them payout on a half yearly basis. I do prefer those that payout on a quarterly basis as semi-annual ones tend to have bigger price fluctuations.

Though the correct name for the payout is "income distributions", many people including myself call them "dividend" like other stocks.

2) Blue Chips

Some blue chips do give very decent and consistent returns. They have strong fundamentals and are less likely to default. Also, there's a higher chance of the price increasing over a longer period of time. Dividends are also expected to increase as their earnings increase.

Examples of such blue chips are

a) Singtel

Singtel gave a total dividend of $258 per lot of dividend in 2011. Based on the last done price of 3.12, this is a 8.2% yield. In 2011, Singtel gave out a special dividend which boosted the yield. So we should be looking at other years where there is no special dividend given.

In 2010, Singtel gave out $142 per lot. This will translate to a 4.55% yield. Though it is much lower, it is still much better than the interest rates on saving accounts banks are currently offering.

b) St Engineering

St Engineering gave out a total of $145.50 of dividend in 2011. Based on the last done price of 3.13, it is a yield of 4.64%. For the year of 2012, a dividend of $125 has just been declared. This is an increase from the $115.50 for the same period as compared to the previous year.

c) SPH

SPH gave out $240 of dividends in 2011. This is a yield of 6.4% based on its last done price of $3.74. Other than its high yield, another thing I like about SPH is its monopoly business.

3) Fixed income

I will lump preference shares and bonds here. Preference shares and bonds can give regular dividends on a typical half yearly basis. If there is a need to sell them for cash, I could also do this in the open market. The yield may not be as high as the REITs or blue chips, but these counters are safer in nature and are less volatile in prices.

Budget: CPF contribution rates for older workers to be raised

Earlier, I posted that CPF contribution rates for older workers are likely to increase. The budget 2012 announcements came out yesterday and this news is now confirmed. The increase will be gradual and the details of the first increase has been announced.
In this post, I will describe the new changes and my thoughts on these changes.

News Link:
http://www.channelnewsasia.com/stories/singaporelocalnews/view/1183629/1/.html

Previous post:
Employer CPF contributions for older workers to increase: PM


The details of the increase are as follows:
Tables and information extracted from
 http://www.singaporebudget.gov.sg/budget_2012/key_initiatives/families1.html

 A) Higher contribution rates for the elderly

Employees older than 50 years old will now find themselves with a tighter cash flow. One who is aged 50-55 will find themselves taking home a 2% less of their gross income.

For example, for one who earns $5000 per month normally will take home $4400. His CPF contribution is $600 + $900 (employee + employer contributions)

With this change, he will take home $4300. His CPF contribution will be increase to $700 + $925

If we look at the cash + CPF, he is getting a bit more due to the increase in employer contributions. However, the actual cash he can use freely has reduced. For Singaporeans who don't know how to plan their own retirements, this will actually help them to set aside more money for their retirement needs. However, for people who know how to manage their money well, they may not welcome this move.

For age 50-60, with the increase in contribution rates only increase their CPF OA by 0.5%. The bulk of it will got to their SA and MA. This may be be both good and bad.

The good:

SA and MA has a higher interest rate of 4% as compared to OA's 2.5%. This will help these older workers to save up more for their retirement needs.

The bad:

There are many people who took up a HDB loan after the age of 30. If the loan period is 30 years, they will find themselves paying back until they reach 60. This increase in OA contributions is not going to help much to service their HDB loans. 

B) Higher CPF contribution rates for older self-employed individuals

 

C) Higher Earned income relief for older workers

Self employed individuals will also see an increase in CPF contributions as well.

There will also be an increase in earned income relief. This will apply to individuals above the age of 55. I didn't quite expect this change but I feel that this is not going to help much.

Let me break down the numbers a little more. The income tax in Singapore is progressive. This means that at higher levels, the tax increases. The current tax rates is as follows:

For an assessable income of 20k, the tax rate is 0%

For an assessable income of 20-30k, the tax rate is 2%

For an assessable income of 30-40k, the tax rate is 3.5% 

For an assessable income of 40-80k, the tax rate is 7% 

For an assessable income of 80-120k, the tax rate is 11.5%  

and so on...

If you fall into the band of 40-80k, the additional 3k in tax reduction is only $210 per year.
If you belong to the 30-40k, the tax reduction is only $105.
Yes, this is RELIEF, not REBATE.

The initiatives above are designed to help Singaporeans cope better with their retirement needs. For me, I will still continue with my own plans that do not take CPF balances into consideration. There is still a few decades to my own retirement and there is likely to be more changes along the way.

Huge jump for AIMS

AIMS jumped up by 6c today, closing at a 1.085 today. this increase is a little unusual for AIMS. Since its share consolidation of 5 shares to 1 shares, it has been moving in small steps of less than 2c per day. Today, there is a sharp jump even though there are

1) No announcements by AIMS today

2) High volume

3) Other industrial REIT counterparts did not rise sharply. For example:

• Maple Industrial REIT: closed at 1.12, up 0.01 (+0.90%)
• Maple Logistics Trust:  closed at 0.89, up 0.01 (+1.14%)
• Sabana REIT: closed at 0.91 , no change (+0%)

I think for the next few weeks, AIMS should stay between $1.00 and $1.10. $1.10 will be a very strong resistance. Even though it touched 1.10 briefly today, I doubt it can break this resistance any time soon.

This rise is likely to affect its industrial REIT counterparts, I bought 2 lots of Sabana REIT today. Sabana REIT is currently the 2nd highest in yield (~9%). Even if Sabana REIT were to fall over the next few weeks, I should still be receiving decent yield for it.

For fellow AIMS investors, we will be receiving out income distributions for AIMS next month (a $26 per lot). I look forward to the mini angpow that is coming in a month's time..

Employer CPF contributions for older workers to increase: PM

In some of my earlier posts, I commented that most people will not be able to hit their CPF minimum sum especially after paying for the costly HDB flat. 2 days ago, PM Lee commented that the CPF contribution rate for older workers will be increased gradually.

News Link:

http://news.asiaone.com/News/Latest%2BNews/Singapore/Story/A1Story20120209-326873.html

This news came as no surprise to me. However to implement this well enough is a big challenge. As mentioned by PM Lee, "many older workers were able to keep their jobs because the cost of contributing to their CPF was lower and so they were cheaper to retain". I hope that these "older workers" will not end up losing their jobs as companies find them more expensive to retain. 

The Budget 2012 announcements will be out in a week's time. I suspect some changes on the CPF contribution rates will be introduced. Like always, it is likely to be a gradual increase of 3-5 years. We should also see new schemes/rebates introduced to help the general Singaporeans to cope with the high cost of living. After all, we have seen a high inflation rate of 5.2% in 2011.

STI approaching 3000 points

Back in 2011, the STI closed off at 2646 at the end of year 2011. When we stepped into year 2012, the new year rally started. Some people called this the Capricorn effect where many investors start to rebalance their portfolios and starts to buy the various stocks. The STI closed off at 2960 after hitting at a recent high of 2992. That is more than a 10% increase since this year has started.

I would think that the 3000 points is a strong resistance. 3000 is a psychological barrier to many investors and some of them will start cashing out at the range of 2900-3000.

Based on the chart above, the RSI and stochastics are hovering in the over bought regions for a while already. The resistance level is around 3008 points and the immediate support is around 2940. If the resistance of 3008 can be broken through, we can see a next resistance at 3090. I would think that the immediate trend of the STI should fluctuate between 2875 to 3090 for the next 2 weeks or so.

For me, I will continue with dividend play. Keep REITs and high yield blue chips that will give me a consistent source of dividends. For existing shares that I already own, unless there are drastic changes to their business fundamentals, I will keep them for dividend income. If prices drop, I will consider topping up. If prices continue to rise, my overall portfolio valuation will increase. 

WIN - WIN. =)

So you wanna... buy a HDB [part 1]

Buying a new home is considered a milestone for many Singaporeans. For most, it would mean buying a HDB flat. We have seen the prices of HDB flats rose drastically in the past few years.

As buying a new flat is a huge topic, I will be splitting up the topic over a few posts as I gather more information on this. This post will focus on the prices of HDB flats and the loan repayment amounts.

If you qualify under to buy an new Build to order (BTO) flat from HDB, the prices you are looking at will be significantly lower. You will however need to wait around 3 years before the flat is build and ready for you to live in.

An extract of Jan 2012 BTO flat prices from http://www.hdb.gov.sg/fi10/fi10296p.nsf/PressReleases/B6004B60783746C9482579820001E7CB?OpenDocument

Most people I talked to prefer getting a 4 room flat. A 4 room flat will have 3 bed rooms and is suitable for a typical family with 2 children to live in. Depending on the location of the flat, it can even go up to 300k or more.

For those who are not eligible to buy a BTO flat, they may have to consider buying an executive condominium, DBSS flat or even a resale flat. A resale flat will be much more expensive (can go up to 800k in some instances) and will normally come with a hefty "cash over valuation (COV)".

With such high prices, most Singaporeans will need to take up a housing loan to finance the housing. The current housing loan interest stands at 2.6%. At this interest rate, many people may start to wonder how much they will need to pay per month or if they can pay solely from their CPF OA? 

Assuming a 30 year loan, the monthly repayment amount and the total paid amounts are as follows:

Loan	Monthly payment	est total paid
200,000	801	288,360
300,000	1,202	432,720
400,000	1,602	576,720
500,000	2,002	720,720
600,000	2,403	865,080
700,000	2,803	1,009,080
800,000	3,203	1,153,080
900,000	3,604	1,297,440
1,000,000	4,004	1,441,440

A few points to note about these numbers:

1) If you choose to service the loan over 30 years, you end up paying about 44% more than your original loan amount

2) For every 100k increase in the loan, there is about a $400 increase in the monthly repayment.

3) For a 500k loan, you will need to repay $2002 per month. This is a critical point. Assuming a pay of $5000 or more, you would be paying the maximum sum for the CPF contributions. Along with the 16% employer contribution. The monthly contribution comes up to $1800. Of which, depending on your age, it is divided into different proportion to your OA, SA and MA [http://mycpf.cpf.gov.sg/Employers/Gen-Info/cpf-Contri/ContriRa.htm] [see table below]

For young couples below the age of 35 with a monthly pay of 5k or more, the OA contribution will come to about $1150 (23/36*1800) per person. This will mean that

a) Until they hit 45, they would be paying with almost all their CPF OA contributions

b) From the age of 45 onwards, as OA contributions will reduce to a point where they can no longer rely on the CPF OA alone to repay the loans. This means that they would need to fork out cash monthly to repay the loans. This cash amount will increase as they move to a different age band with a even lower OA contribution rate. At the age of 50, the maximum CPF contribution rate towards OA will be $650 (13/30*1500)

With this, if housing prices continue to increase, many couples will find themselves with very little CPF OA balances left by the time they retire. They will probably need to depend on their SA balances to hit the CPF minimum sum. Which is why I have been emphasizing the importance to plan one's retirement without the CPF in the picture.

Looking at all these numbers, are you worried now?

As a single who probably can only buy a resale flat at exorbitant prices in a few years time, I am very worried. =(