Understanding yield for REITs
Alberto Costa explains REIT yield as annual dividends divided by price. High yield alone doesn't mean a good investment. He compares Lippo Mall, where dividends fell faster than the price rose, against First REIT, which kept dividends stable while the price climbed.
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Good yield means good investment. Hi, welcome to this new video. The topic today is probably understood from the title again, REITs, Real Estate Investment trust. And specifically, I want to touch one point that may confuse some people, especially at the beginning, because usually when you invest in REITs, you are looking at opportunities where you can get a good yield. That means you get paid a lot of dividends and you get your passive income this way. But in this video I want to show you that looking at the yield alone is not enough and you may end up buying shares of a company that is not so great. So let's start with the revision. What is actually yielding? Okay, so the yield, if you remember, is basically the dividends that you get over the price. Okay? Now dividends usually in one year, let's say in one year. And this is the number that can be 6%, 7%, whatever. Usually I want to get at least 5.5% in my investment for real estate investment trust. But it's up to you what you want. Now, what is the problem here? Yield is a ratio between two things. The numerator, this number is the dividends that you get in one year or you expect to have in one year. And the price is, well, the price you buy. Now there may be different situations where the yield is attractive. So the question is, when can we have a good yield? So let's identify three cases. Number one, you may have bad dividends. So the dividends that this REIT is paying are not so good. They are even less and less, but the price is very bad. This means that the price is going down even faster than the dividends. So overall the ratio is still good. Okay, number two is when the dividends are good, but the price is bad. Okay, so maybe the dividends are good, stable or rising, but the price for some reason is going down or even very bad, but usually bad is enough. And number three, you can have very good dividend. And good, good price here means going up. Okay? So in this situation, the price is going down even faster than the dividends. In this situation, the dividends are going up even faster than the price. So this is not common. I have to say situation three is not common, but these two are. And here is the thing, if you buy a reit, this is something that you don't want, okay, but this is something that potentially can be good. And I want to give you two examples of this. The first one, the very bad price and bad dividends is lipo model. So we will compare these two situations and this one is first read So I want to show you how this is really maybe similar yield, but the situation is quite different. Okay, so let's have a look at the chart. Now you see here, this is Lipomol, okay? And Lipomol is a REIT investing in Indonesia. As first three, they are from different sectors. Lipo Mall is in the retail and first street is in the healthcare sector. But look at what happens here with the dividends. I don't know if you can see clearly, but I want to highlight the value of the dividends that are paid. So here we have 90. 0.009. Okay? Then here we have 86, and then we have 79. And then we have 67. And here we have 59. And here we have 49 and then 30. So in other words, the price is going down, but the dividends are going down as well. So why the yield here was very attractive because the price was going down even faster than the dividends. So this is a situation where the dividends are going down, but the price is going down even more. So that's why the yield was good. But would you invest in something like that? Well, no. Why should you invest in something that is giving less and less dividends? First, you are buying something that is in a downtrend and I would not advise you to do that unless you hit some kind of support or you see some kind of reversal as is happening around here. We will see later what happened here. But second, you don't want something that is giving you less and less dividends. Because if you are buying REITs for the long term investing perspective, you basically want to collect dividends. So it doesn't make any sense to buy something for which you observe that they are giving less and less dividends, isn't it? But here you see that something happened. Here we were at 30, right? Then they start to pay 55 and then 60, 56. So it seems that they started to pay more dividends and the trend also started to change. Okay, so maybe here you can observe it can be an entry price that was. That would be interesting, but definitely not here when the dividends were still falling. Now let's move to first reit and you will see that the chart is not so different. You see, it's similar, but notice the difference. Dividends were 215. 215. 215. Same 215 again. 215 and 215. So what, what is the difference between this and Lipomol? That here the dividends were good, stable. Okay, but the price is going down a lot, so the yield is very high. Now in this case, if the price is going down not because the fundamentals are bad and I believe for lipo mole is still okay. And you see a situation like that and imagine that you have to choose between Lippo Mall and first reit, which one would you buy? Well, to me I would buy rather first reit. Why? Because the dividends are stable. Meaning to say, even if I buy now, I can expect to get the same kind of dividends paid. So because for me what I am interested in is to collect dividends as passive income. This is a situation where I would rather enter. But for Lippo Mall, no, because if the dividends are falling, I don't want to get paid less and less. So I get less money as dividends plus the capital loss because the price was falling. So I really hope this video clarifies this point because many people, they think, oh my God, the yield is 8% or 9% I have to buy. Well, no, first you need to do your fundamentals check. Is the REIT good? Is the gearing low? The other things that I mention in my videos, is the price over nav good? Are we near some support or in an uptrend? And when you look at the dividends you need to check if the trend is going up or stable. Okay, so don't just take the yield and assume that well, because the yield is great, then is a great investment. No, it's not. It could be, but you need further analysis. So I really hope that this video will help because sometimes people, they are too, they don't really want to do their homework in a way. So you just take a number you see is good and then you are in. And then maybe you regret later. So with this I would like to conclude this video as usual. If you have not yet subscribed to this channel, do it now so you can be updated when I upload new videos. And as usual, if you have any comment, if something is not clear, feel free to write a comment and I will be more than happy that to answer to your question. So again, thank you for watching and see you next time.
