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When you’re thinking about investing for retirement, the reliability of dividends, or distributions, from stocks and real estate investment trusts (REITs) is a high priority. That’s because we generally want to be invested in names that can deliver passive income on a regular basis without raising any doubts.
In Hong Kong, given the higher costs of living (think property) and cost inflation of services (such as healthcare), the growth of this passive income is also important. What’s more, all this dividend income is completely tax-free in Hong Kong.
But as investors in Asia, we should attempt to look past our “home bias” when investing in markets and seek out alternative sources of income. That’s why this one Singapore REIT which has been paying dividends for years and, which I believe, will continue to do so for years to come, is perfect for those of us planning for retirement.
Reliable income stream
Mapletree Logistics Trust (SGX: M44U), or MLT, is an Asia-focused logistics REIT. What’s great about it is its diversity of assets – it has a sizeable portfolio of 141 properties across Singapore, Hong Kong, Japan, China, Australia, South Korea, Malaysia, and Vietnam.
MLT’s sponsor is Mapletree Investments Pte, a leading real estate, investment, and property management firm that owns and manages tens-of-billions worth of properties across the office, retail, logistics, industrial, residential and corporate housing sectors. This strong parent company has allowed MLT to really grow both its income and distribution per unit (DPU) over the years – since first listing in 2005.
As you can see below, MLT has seen net property income surge from S$70 million in 2006 (its first full year as a listed firm) to S$389.5 million in FY18/19 (for the year ended 31 March 2019). Meanwhile, its DPU has grown from 5.07 Singapore cents to 7.94 Singapore cents, delivering a compound annual growth rate (CAGR) of 3.8% in its DPU over that period.
Source: Mapletree Logistics Trust annual reports. *FY11/12 comprised five quarters ended 31 March 2012 due to a change in MLT’s financial year-end to 31 March.
Delivering growth above inflation
That CAGR of its DPU still manages to beat Hong Kong’s consumer price inflation rate of 3.5% (as of August 2019), which was at a three-year high for the month. For retirees, or those approaching retirement, the reliability and sustainability of a dividend are of paramount importance. In this respect, MLT possesses a solid track record over the years of continually increasing its DPU.
In fact, more recently this growth has accelerated as FY18/19’s DPU of 7.94 Singapore cents was up 4.2% year-on-year from FY17/18’s DPU. What’s more, MLT has assets spread around the whole of Asia and is set to benefit from increased demand for warehousing space that’s needed to accommodate the rapid rise of e-commerce.
Overall, MLT offers investors who are thinking about retirement investments with an ideal platform for both reliable income as well as growth in that income. The second point is crucial as ensuring the expansion of payouts will mean retirees can outpace inflationary costs in Hong Kong (which can be notoriously high).
Admittedly, certain risks do linger for MLT in relation to the US-China trade war but, in my opinion, even if trade between the world’s two largest economies does drop off, the need for warehousing space in China (itself a huge domestic consumer market) and the rest of Asia will only continue to grow. At the moment, MLT is trading at a unit price of $1.62 giving it an attractive distribution yield of 5.0% on a trailing 12-month basis.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Tim Phillips owns shares in Mapletree Logistics Trust.