Dividend Yielding Blue Chips or REITs

With the recent lacklustre market, it certainly seems like prices for most Singapore stocks will just keep getting lower. Perhaps it is time to load up some dividend yielding stocks just for the dividends. Of course, there is the other option of loading up REITs which also offers a pretty decent yield.

These are just some considerations I will have to make when thinking of investing in high yield stocks or REITs. For blue chips, my own considerations are as follows:

1. Prices can go lower. In a bear market, blue chips are stable but will usually head lower. The loss in capital though might be temporary as the blue chips will be quite certain to rise again when the bull market comes in.

2. Safe bets in blue chips. Sound business fundamentals, cash reserves. Able to weather through poor economic conditions compared to small cap stocks.

3. Yields are around 6%. Dividends though might drop in bad times and decrease the yield.

4. Limited funds to average down should stock price head lower due to high price of Singapore blue chips stocks (especially if one does not have alot of spare cash for investing).

Considerations for investing in REITs are as follows:

1. High yield but gains from distribution might not be able to recoup capital loss.

2. REITs trading at discount to NAV because market has priced in the potential drop in property prices?

3. REITs will need to look into ways to refinance their debt or reduce their gearing. This can reduce the DPU.

4. DPU might not always increase and might decrease thus resulting in high yields momentarily. If price is 10c and DPU is 4c, yield is 40%. But what if DPU drops to 2c and yield is now 20%. Should we buy because the yield is still high. What if the DPU continues to drop to 1c or even less? Price will most likely drop and investor will be left with both capital loss as well as a shrinking distribution.

5. Very focused in certain sectors (hotel, industrial) or countries and might be affected by economic climate or conditions.

6. Singapore REITs still relatively new and not matured.