You will be able to separate price return from total return and explain why charts without dividends understate income stocks.
Marcus is 41 and runs operations for a logistics firm in Singapore. He has invested for about twelve years, holds a world equity ETF as his core, and owns a handful of SGX and US shares on the side. One of them is an S-REIT he bought three years ago. Every time he opens his broker app, the REIT sits in red. He bought 6,000 units at S$2.10, and today they trade at S$2.00. The app says he is down 4.8%.
He isn't. Over those three years the REIT paid him S$2,280 in distributions, which landed in his bank account and got spent on school fees and a holiday. The app only tracks the price. It has no idea the cash ever existed.
A price return measures only the change in the market price. For Marcus's REIT, using these made-up figures, that is S$2.00 divided by S$2.10, minus one: about minus 4.8%. His holding went from S$12,600 to S$12,000.
A total return adds back everything the holding paid you. Marcus received three yearly distributions, of S$0.13, S$0.13 and S$0.12 a unit. On 6,000 units that is S$2,280. Add it to the ending value and he finished with S$14,280 in value and cash from S$12,600 put in. That is a gain of about 13.3% over three years, not a loss.
For a stock that pays nothing, price and total return are the same. For a REIT or a bank that pays out a large share of its profits, the gap is most of the story. Any chart you see in a broker app or on a news site is probably a price chart, and for income stocks it understates what holders actually earned. Check the label before you compare.
The 13.3% treats Marcus's distributions as cash sitting in a drawer. Index providers and fund reports do something different. They assume each payout is reinvested in the same holding on the pay date, so it starts earning from that day.
Run Marcus's REIT that way, with made-up prices of S$2.02, S$2.15 and S$2.00 on the three pay dates. The first S$780 buys about 386 more units at S$2.02. The second payout is now larger, because it is paid on more units, and buys more again. After three rounds he would hold about 7,179 units, worth about S$14,357 at S$2.00. That is a total return of about 13.9%, or about 4.4% a year compounded.
The difference between 13.3% and 13.9% looks small over three years. Over twenty years it compounds into real money, and it is why you can't compare your own cash-taking record with an index's reinvested total return and call the gap skill or bad luck. If you spent your dividends, your account return will trail the index's total return even if you held exactly the same shares. To compare fairly, either reinvest the payouts on paper in your spreadsheet, or compare with a price index plus the cash you actually received.
Lesson 1.4, Time-weighted vs money-weighted returns on your own account, handles this properly: a distribution you take out is a withdrawal, and the method there accounts for it.
Look up a world equity index and you may find two total return series with the same name. Index providers such as MSCI publish a gross version and a net version.
The gross version reinvests the full dividend, as if no tax were taken. The net version reinvests the dividend after deducting withholding tax at a rate the provider assumes. For an investor in Singapore buying US shares directly, the US withholds part of every dividend before it reaches you, as Investing in US and global markets from Singapore explains in lesson 3.1, Why 30% of a US dividend never reaches you.
Here is the size of it, with made-up figures. Say a world index has a dividend yield of 2% a year and the tax withheld is 30% of that. Net total return trails gross by about 0.6 percentage points a year: 2% times 30%. A fund you hold can't escape that tax, so comparing it with the gross index makes the fund look worse than it is. Comparing it with the net index is fairer. Whichever you pick, write it down, because the choice is worth more than many fee differences you might spend hours on.
How dividends are declared, why the price falls on the ex-date and how S-REIT distributions are taxed in Singapore all belong to Dividend stocks and S-REITs. Lesson 1.4 of that course, Track one dividend and its total return, walks through a single payout from announcement to bank account. This lesson only measures the effect of payouts on your return, and that's all your returns tab needs.
One habit to take from it: every holding in your workbook gets two columns, price return and total return, and you only ever compare total return with total return.
For the activity, pick one dividend-paying holding you've owned for at least three years. You will need its price at the start and end, and every payout with its pay date, which SGXNet or your broker statements will show.
Rebuild one dividend-paying holding's last three years as price return and as total return, and note the difference in SGD.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).