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Evening with AK and friends 2017. Happening on 6 October 2017.

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Second "e-book".

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Avoiding the instant gratification of yield (SingTel, Starhub and REITs).

Wednesday, August 16, 2017

My blog has pretty useful content in the comments section but many do not read the comments section, I found out a long time ago. 

So, there was a time when I would share the comments in a blog post so that they reach more people. I stop doing that after I found out that Google didn't like it and it affected my blog's page ranking. 

However, I have decided that it really should not matter to me and that making sure that the content reaches more people is more important. 


This was a recent conversation:

redponza said...
Hi AK,
There is a 4th telco getting into Singapore, don't you worry about the intensified competition?

Also, unlike REIT where there is minimum capital expenditure, telco needs to upgrade their network consistently to maintain competitiveness. With the lower yield, and meh growth potential, not sure why it is better than REIT.

In the telco space, isn't Starhub better with a much higher dividend yield?

Thanks.



AK said...
Hi redponza,

SingTel derives less than 20% of its revenue from Singapore. It is truly an MNC.

(Added on 21 Aug 17. Reader:
I look at Singtel's annual report. I can't derive the 20%. It is 40+ % to my calculation. How did u derive it? 

AK:
Well spotted. I meant to say its Singapore mobile business which is, of course, what would probably be impacted by the entry of a 4th Telco next year. That business segment accounts for 13% of SingTel's total revenue.)

As for CAPEX, selling away most of its stake in Netlink NBN passed a heavy baby to other investors. SingTel retains only a 25% stake in the newly listed entity.

If you are worried about the 4th Telco and increased competition in Singapore, you should be more worried about Starhub.

This is also probably why Mr. Market demands a higher dividend yield from Starhub which incidentally also has a higher payout ratio compared to SingTel.

One more thing, we really shouldn't be comparing Telcos with REITs. The yields are not comparable.

SingTel pays out a percentage of its earnings as dividends while REITs pay out from their operational cash flow.

If we were to use the same yardstick for both, we would worry about REITs since their DPU is usually higher than their EPU.





redponza said...
Is telco attractive?

From my point of view, return = dividend yield + dividend growth, taking debt into consideration.
There is lower growth and lower yield in telco, thus I am puzzled why telco is even considered in the first place.

And from a price to book standpoint, they can never beats a REIT =.=

But on the other hand, I saw famous investors grabbing telco companies, hence I must be missing sth here?





AK said...
Hi redponza,

Like I said, they are different animals.

It depends on how we look at investments and how value is created.

Most REITs pay out more than they earn. They do not retain any earnings.

SingTel pay a percentage of their earnings and they retain some earnings so that they become more valuable over time.

I like some REITs and my portfolio is rather heavy in REITs. So, it is sensible to become less dependent on REITs especially when conditions have become less benign for them.

It is about having a more holistic approach.

Frankly, not all REITs are good investments.

We should wonder at the sustainability of distributions.

A REIT could have high CAPEX down the road:

http://singaporeanstocksinvestor.blogspot.sg/2015/08/is-keppel-dc-reit-attractive-investment.html

A REIT could see their assets disappear in the not too distant future:

http://singaporeanstocksinvestor.blogspot.sg/2017/03/viva-industrial-trust-more-attractive.html

So, we must be careful when we lump REITs together to say that REITs can never be beaten in terms of return on investment. The quality of returns and the sustainability are pertinent considerations.

To new readers of ASSI, please read related post #1 below.


Related posts:

1. Instant gratification of yield.
2. SingTel and Netlink NBN Trust.

1 comments:

AK71 said...

Reader:
I look at Singtel's annual report. I can't derive the 20%. It is 40+ % to my calculation. How did u derive it? 

AK:
Well spotted. I meant to say its Singapore mobile business which is, of course, what would probably be impacted by the entry of a 4th Telco next year. That business segment accounts for 13% of SingTel's total revenue.

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