REITs dividen yield is attractive now, should I invest?

A lot of people want to buy REIT because of its attractive dividen. When the market crash and REIT prices are not spares as well and will similarly react to the market. When the price decreases, the dividen yield will reflecting higher. Is it a right way to tell a good time to buy in REIT when the Dividen indicator showing high? Dividen yield is only one of the key part in REIT investing.

Let's go back to the basic How is the Dividen Yield calculated?
Dividen Yield is calculated Dividen Payout divide by the REIT price as shown below:

At current market juncture, we may find out some of the REITs are more than 10%, eg. Hektar REIT at 11% & Tower REIT at 10%. It looks very attractive and a lot of us wanted to jump in to buy REIT now. The word of precaution is not just to look at one indicator only and decide to buy into that high dividend yield REIT.

Thus, from the formula above, we should aware that the Price is the current price and Dividend is the past dividend that has payout to the investors. So it has some implication here. When we are using the past dividend with current market crashed price, it could give us a false indication that it is high dividend. We should wait till next quarter if the dividend payout will be cut in order to reflect to the price. We are not sure if there is any corporate actions during this market crash from the REIT's management point of view.

If the dividend is cut due to the stalled economy from Movement Control Order (MCO), then the REIT price will drop further. So the rule is not just look at Dividend Yield and buy into REIT due to its give you the highest yield.

Another way to access REITs dividend yield is to check back the past history of the REIT so that it can give a clearer picture how does REITs perform in the past market crashed.

Again, snapped shot below is from yesterday Starbiz Top 100 companies that has four REITs registered, namely -IGBREIT, PAVREIT, SUNREIT, AXREIT with their Dividend yield range from 4.8% to 6%.

There are total of 18 REITs in KLCI as below. Other than the Dividend Yield, there are others indicators like Price to Book, NAV, Gearing ratio etc.

Let's analyze another indicator called Net Asset Value (NAV)
Calculating NAV is simple: Simply subtract the value of the REIT's liabilities from the value of its assets, and then divide the result by the number of shares outstanding. When we buy shares or REITs, every investors want to buy undervalue stocks and we can find it a lot during the market crashes. Since a lot of REIT's price come down, which will be an undervalue REITs with good buy?

To answer that question we need to compare the current Price with Net Asset Value(NAV) with below two scenarios:

Undervalue: When Price < NAV

Overvalue: When Price > NAV

Using back the same table, a column of Ratio of Price/NAV is computed. Negative value means the current price is undervalue compare to their Net Asset Value. However, with just one data point at this instances to make the decision to buy is not wise as well. We should pull back the past 10 years or 5 years history of each NAV Vs price, is it always at the undervalue of 40%, 37%? You will find some of the REITs are always at 30% undervalue in the past and during this time they dipped further does not mean that it is a good buy now. A good REIT normally will not suffer a heavy price crash, if it does, it will recover fast. Thus, do refer back to the past history o understand well.

Word of precaution again, while net asset value is a helpful calculation, it's not necessarily the best way to gauge a REIT performance.

Conclusion, during market crash, it is not to look at the REITs that drop the most resulting in high dividend yield only. As a investor, we should look at the from Total return aspect which includes the capital gain and stable consistent dividend yield in order to grow your wealth.

This is the good time to look into those good REITs and put into your watch list.