Divestment and Investment to grow money out from nothing !!!
Did a divestment and investment strategy on Cambridge Industrial Trust in the month of February 2015. Selling it at $0.68 and that will gather a total return of 49.02% (6.93% from capital return and 42.08% from dividend return). Vested since 2007 and for that period of 7 years of holding, that will translate to an annualized return of 5.86%. Not something fantastic though but fair enough consider the return is above the average inflation rate (about 3%).
The reasons for divestment :-
1. It is in the same sector but fundamentally weaker than MapletreeInd and in order to achieve a more diversify and balanced portfolio (1 stock per sector), it is a obvious candidate to let go.
2. The dividend growth has been rather stagnant for the past few quarters (as compared to rest of the Reits in my portfolio) and this causes some concern on the management's ability to grow the Reit.
3. Cambridge Industrial Trust presently occupies 23% (the largest) in my portfolio in term of capital vested and being the weakest fundamentally among the Reits, divesting will free up large amount of capital to be used either to add more of those stronger Reits or new opportunity.
Despite having strong reasons to divest Cambridge Industrial Trust, I'm still in a 模凌两可 situation as to whether to go ahead or not. This is mainly because as an "income stock" it can still deliver constant return every quarter in term of dividend. To divest away meaning will be losing a constant stream of "income" per annual.
With all that in mind, came out a strategy that satisfy both cases, that is instead of taking cash dividend for the latest distribution, I opted for scrip dividend. As such, the new scrip would be considered as a form of new investment in Cambridge Industrial Trust while I divested the old investment away. There are good reasons for doing so.
1. Cambridge Industrial Trust has been doing a cash/scrip distribution option for past few years and it should be doing that in the future too. To continue getting scrip dividend for the new investment is like compound investing.
2. The scrip compound investing method allows me not to inject a single cent to the investment and hence, mathematically, it is impossible to lose money.
3. I could turn an "income stock" to a "growth stock" because every quarter getting scrip dividend is like multiplying up my investment holding and hence in the long run, profit will be multiplying up.
Conceptually, I am using the strategy of compound investing like I did for my CPF's First REIT but underlying there is some different. In CPF's First REIT, I still have a capital being locked up even though mathematically it is impossible to lose money and on a floating profit basis but for the case of Cambridge Industrial Trust, not a single cent is needed to put in for the holding. That effectively can be termed as "growing money out from nothing".
