Cash or DRIP?

Readers have asked me how is it that I have odd lots (<100 shares) in my holdings of First REIT. That, my dear readers, is the result of Dividend Reinvestment Program (DRIP). As the name suggests, instead of taking cash payments for your dividend payouts, you choose to pump in the money back into the stock in exchange for shares. Not all companies have this dividend policy in the Singapore Exchange, in my holdings I have First REIT and OCBC as examples.

The advantage to companies with DRIP policies is that they won't have to give out cold hard cash to shareholders, conserving the cash for other uses. The disadvantage would be that the amount of outstanding shares increases, which might lead to dilution in Earnings-per-Share (EPS), lower dividend payouts in future (assuming no earnings growth) etc.

Advantages to the shareholders on the other hand, are that the shares offered in such programs are discounted from those in the open market, from around 3% for First REIT, to a whopping 10% discount for OCBC! This means that, assuming there's no change in the share price on the open market, you would have reaped a gain more than the cash payment would have been. In addition. this would also allow shareholders to accumulate stocks at a cheaper and faster rate. Faster, as the shares thus accumulated would entitle you to more dividends the next time round. For example, 1000 shares of OCBC would entitle you to 25 DRIP shares, giving you a total of 1025 shares. Future dividend rates would then be based on your 1025 shares instead. Assuming this continues on and on, the compounding rate would ensure high growth before long.

So now the question is, do we go for DRIP? Or would cash be a better option? I would say that it depends on the time frame in question. Personally, as I'm still working, and not financially burdened (kids, housing loan etc), and thus having no need of any excess cash, I would much prefer to participate in as many DRIP as I can, to take advantage of the cheaper prices offered, maximise the growth of my portfolio, and to shorten the time till my financial independence. Likely to continue with this strategy for as long as possible (5-10 years maybe?).

Sell: NeraTel

Neratel recently announced that they have come to an agreement with Ingenico Group S.A. to sell off their payments solution assets. This deal makes no sense to me given that their payments solutions wing is quite well established, and enjoys certain monopolies in neighbouring countries. Its also growing as a proportion of their overall revenues and profits, and part of the reason why Neratel was a compelling investment choice for me, with its stable income stream enabling the company to give a steady dividend to its shareholders. The other parts of Neratel's business in contrast have unpredictable income streams as they are largely based on projects, not ideal for an income investor like me. Sure, shareholders will be rewarded by the disposal of the asset, but its akin to killing the goose that lays the golden eggs.

It is likely that I would be disposing my shares, barring any further news between now and Monday. Thankfully, a recent price correction enabled me to reduce my average price to below 60 cents. With Neratel's price fluctuating between 69 - 70 cents, I am looking at capital gains of more than 20%. Not a bad investment if I could say so myself. Sadly I wasn't able to get more of their dividends though.

Now...what do I do with the spare cash....

Portfolio Update April 2016

Another month passed again. Nothing much happened, made some small purchases in Fraser Centrepoint Trust after shopping at Waterway Point in Punggol, as well as doing some research on the company. A defensive stock which I feel comfortable keeping through the likely recession coming soon. Also purchased shares in NeraTel and Hock Lian Seng to average down.

SGX:

Stock Name	Units	Cost	Cost (Per Unit)	Dividends Collected
First REIT	3267	$4,128.07	1.264	$198.92
Keppel DC REIT	1000	$937.00	0.937	$68.40
Saizen REIT	2000	$1,724.21	0.862	$2,201.60
iReit	400	$225.11	0.563	$11.41
LMIRT	700	$244.59	0.349	$17.76
Hock Lian Seng	2800	$1,146.67	0.410	$72.00
OCBC	400	$3,959.45	9.899	$54.00
ABF Bond Fund	300	$343.22	1.144	$7.95
KingsMen Creative	900	$754.80	0.839	$5.00
NeraTel	1300	$743.98	0.572	$7.50
Accordia Golf Trust	1500	$876.58	0.584	$20.88
AIMS AMP Industrial REIT	500	$659.65	1.319	$8.55
ST Engg	200	$563.35	2.817	$0.00
Singtel	100	$378.90	3.789	$6.80
Fraser Centrepoint Trust	500	$996.93	1.994	$0.00

Bought:

1000 shares Hock Lian Seng
600 shares NeraTel
500 shares Fraser Centrepoint Trust

Total dividends received: $572.94 (excluding special dividend from Saizen)
Dividends received in 2016: $98.97 (excluding special dividend from Saizen)
Yield on cost: 3.21%

NYSE:

Stock Name	Units	Cost /USD	Cost (Per Unit) / USD	Dividends Collected
Berkshire Hathaway	2	$271.45	135.726	$0.00
BP	3	$111.75	37.250	$2.37
Omega Healthcare Reit	6	$191.93	31.988	$2.37

Bought:

1 share of Omega Healthcare Reit

Total dividends received: USD$4.74
Dividends received in 2016: USD$4.74
Yield on cost: 0.78%