You will be able to strip one-off payments out of a yield figure to see the recurring income.
Wei Ling's cousin Ravi planned to cover his insurance premiums from a REIT he held. He looked up its yield on a website, saw 7%, and worked out how many units he would need. A year later the distributions came in well short of his plan. Nothing had gone wrong at the REIT. The 7% had included a one-off payment, and his plan was built on it.
This lesson is about separating the income that comes back every year from the payments that look like income but will not repeat.
Lesson 1.2, Where dividends come from and how often they are paid, introduced special dividends. A company sells a building, a business unit or an investment, books a gain, and returns part of it to shareholders. Sometimes a company has an unusually strong year and pays a special to share it.
These payments are real and worth having. But the event that paid for them is over. The building has been sold and cannot be sold again. Unless the company has a stated policy of paying specials regularly from a recurring source, treat each one as a one-off and keep it out of any figure you use for planning.
The label is usually clear. Dividend announcements on SGXNet state the type of payout, and specials are named as such.
S-REITs are a little harder to read. A REIT's distribution can be made up of different parts, and the announcement or the distribution statement in the results usually breaks them down. The labels vary between REITs, but the parts tend to fall into a few groups: income from rent and operations, which is the recurring part; tax-exempt income, often from overseas holdings; and capital distributions, which pay out money that did not come from this period's operating income.
Capital distributions often come from selling a property at a gain and passing some of it to unitholders. Some REITs pay them out in one go. Others spread a gain over several periods to keep distributions steady while they find a new asset or while income recovers.
There is also retained income. A REIT may hold back part of its distributable income in a good period and release it later. That smooths the line on the chart, which is convenient for holders, but it means one period's distribution may include money earned in an earlier one.
None of this is hidden or improper. REITs disclose it. The question for you is how much of the distribution came from the properties' rent this period, because that is the part that repeats. Read the distribution statement or the notes in the results presentation, and look for words like capital distribution, distribution of divestment gains, or release of retained amounts.
Most screeners and broker apps calculate trailing yield by adding everything paid in the last twelve months, specials and capital distributions included, and dividing by today's price. They rarely separate the parts, because their data feeds do not.
So a stock or REIT that paid a large one-off in the last year will show an inflated yield for twelve months, until the payment drops out of the window. That is what caught Ravi.
With made-up figures, his REIT trades at S$1.00 and paid S$0.07 per unit over the past year. Of that, S$0.01 was a capital distribution from a property sale. The website shows 7%. The recurring yield, S$0.06 over S$1.00, is 6%. For a plan meant to cover a fixed bill, losing that one percentage point leaves him about a seventh short of the income he counted on.
The same arithmetic applies to stocks. Recall Wei Ling's stock from lesson 2.1, Dividend yield looks backward, which showed 9.2% with its special and 5.2% without.
The recurring yield is the yield calculated from regular, repeating payouts only: interim and final dividends for a company, and the operating part of the distribution for a REIT. It is the figure that tells you what the holding is likely to pay next year if nothing changes.
It is not a promise. Recurring payouts can still be cut, as module 3 has shown. But it is the right starting point. A plan built on a figure that includes one-offs is short of money from day one.
Lesson 8.3, Rules for reinvesting and for dividend cuts, turns this into a spending rule: when you draw income from a portfolio, spend the recurring part and leave one-offs invested.
Find the announcements for every payout in the last twelve months. For each one, note the type and, for REITs, the breakdown. Add up only the recurring parts. Divide by today's price.
Then compare your figure with the website's. Yours should come out the same or lower. If it is higher, check that you used the same twelve-month window and a current price. The gap tells you how much of the advertised yield was a one-off.
In the activity you will run this on one stock or REIT that paid a special or capital distribution in the last year, and the gap you find is the amount a website-based plan like Ravi's would have overstated.
Recalculate the yield of one stock or REIT that paid a special or capital distribution last year, using only recurring payouts.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).