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Thursday, October 21, 2010

What is REITS and how to get monthly dividend payments from it

A lot of investors, especially senior citizens, are hoping to get consistent and regular dividend payments from stocks.

In this article, we will look into constructing an investment portfolio, which consists of real estate investment trusts (REITs), to get monthly dividend payments.

A REIT is a real estate company that pool investor funds to purchase a portfolio of properties. Normally, it has two unique characteristics: investment in income-producing properties, with almost all of its profits distributed to investors as dividends.

From the table, based on the latest stock price (as at Oct 18) and on assumption that the same dividend payments will be paid over the next 12-month period, almost all REITs will provide about 7%-8% dividend yields. Based on our observations, most of the REITs will try to pay higher dividends over the years. Hence, if the overall economy continues to recover, some REITs may pay even higher dividends for the coming few years.

Due to them only listing at the middle of this year, we have excluded CMMT and Sunreit.

As mentioned earlier, a lot of retirees would like to invest in investment assets that can provide a consistent and regular dividend income. Therefore, we think that REITs can provide a good alternative to the retirees. From the table, except for Arreit, Atrium, Axreit and Hektar, all other REITs will make dividend payments twice per year. Most of them will pay their dividends in the month of February and August. Hence, if an investor would like to receive his dividends other than the above two months, he may need to diversify their REITs into holding many types of REITs.

Based on the list of REITs in the table, we can see that, except for the month of January and April, dividend payments were being made at different months throughout the year, thus investors can receive a stream of dividend income by buying into different types of REITs.

Investors can build a REIT portfolio consisting of a few REITs which make dividend payments at different months of the year. The following is just one of selection options available for consideration.

Based on the current price dated on Oct 18, assuming that the same dividends will be paid in the next 12 months, a portfolio with AMfirst, Arreit, Atrium and Hektar can generate a dividend yield of more than 8% (see table). Besides, by buying with equal amount into these four REITs, investors can get dividend payments for almost every month, except for the month of January, April, July and October.

Nevertheless, investors need to understand that the above selections are solely based on the assumption that these REITs will reward investors with the same dividends and pay during the same month as shown in the table above.

We also understand that apart from the above four REITs, some other REITs may reward investors with even higher dividend payments.

OoiKokHwa is an investment adviser and managing partner of MRR Consulting.

By The Star (By Ooi Kok Hwa)

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