Dividend Yield Companies ... Is It Still Attractive Going Forwards !!

M-REITs

The MREITs is poised for a quiet 2014 due to the low cap environment for both office/industrial and retail properties.

The US bond yields rose (on anticipation of the United States Federal Reserve tapering its quantitative easing measures) to a high of 4.1% from 3.1% in mid-2013.

This will limit growth prospects and share price performance, which hinges on new asset acquisition.

The reversal in bond yields has also caused MREIT spread to expand. MREITs could be facing weaker rental reversions as tenants combat rising cost issues and office space glut in the Klang Valley.

Meanwhile M-REITs may see yields moving towards the historical average spread over 10-year Malaysian Government Securities yields of 314 basis points (+70basis points).

The re-entry point would be when the bond market/yields start showing signs of stabilisation, probably in second half of 2014 as uncertainty over the US Fed’s monetary policy subsided.

Electricity tariff and assessment rate hikes in 2014 were negative for M-REITs as oversupplied office market made it difficult to pass on the extra costs presently.

REITs with solid fundamentals, visible asset pipelines from sponsors and good valuation buffers to cushion the impact of a sudden surge in bond yields would be prefer.

Blue Chips

The past 12 months (Jan – Dec 2013) had seen a great run for the stock market, with the FTSE Bursa Malaysia FBM KLCI registering more than 10% gain for 2013.

But the surge in blue chip stock prices had pushed dividend yield for quality companies down to their lowest level since 2009.

Yield play has lost some of its appeal, with prices of REITs taking a hit in 2HFY2013 amid a switch to the bond market.

The yield of benchmark 10-year MGS is expected to be at between 4.2% and 4.25% in 2014.

Yield-hungry stock investors were better off chasing smaller companies with consistent generous payouts.

Although the spread between Malaysian REITS and MGS had been consistently narrowing due to abundant liquidity hunting for yield, trends were now (Jan 2014) reversing with data showing expansion in yield spreads going forward.