Dividend stripping might be a good idea for S-REITs, say analysts

Enabling S-REITs to outperform 62% of the time.

The city-state’s real estate investment trusts (REITs) may have to reconsider their dividend strategy soon, as analysts say the dividend stripping strategy has enabled Singapore REITs to outperform the market 62% of the observed times, contrary to the efficient market hypothesis.

According to a report by UOB Kay Hian, REITs who employed dividend stripping also yielded excess returns of about 1.4%.

“During periods of outperformance, the market’s historical relative gain observed was 4.5%, while the loss observed was 3.8%,” UOB Kay Hian said.

Meanwhile, UOB Kay Hian adds that past performance is not necessarily an indicator of future outcomes.

“We saw that the optimal holding period of 44 days that yielded the highest relative returns of 3.2% on average, is nearly twice the 23-day holding period observed for the highest outperformance ratio of 82%. Returns seem higher for extended holding periods beyond the dividend ex-date (22 days on average) while outperformance ratio tends to be achievable even with shorter periods (9 days on average),” UOB Kay Hian said.