Welcome back to ‘The Dividend Uncle’, where we navigate the turbulent seas of recession fears, overdue interest rate cuts, and stock market slumps, all unfolding within just a few days!

Last week, we released a video about the fleeting rally in REITs and a shorter update predicting the US Fed might cut interest rates three times this year. Fast forward to this week, and weakening US labor market metrics have triggered a global stock market plunge, with volatility now reigning supreme.

As long-term investors, this temporary pause in the recovery of REITs and dividend stocks could be a golden opportunity to secure the increasingly attractive yields of blue-chip REITs. With interest rate cuts on the horizon, high-quality REITs might offer both income and potential capital appreciation once we navigate past the current volatility.

Today, we’re uncovering three blue-chip REITs offering a solid dividend yield of 7% that you’ll want to lock in for the long term, especially while the rest of the market remains fearful.

Before we dive in, I must let you know that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, and they are not tailored to your specific financial situation. The REITs and institutions mentioned are cited purely as examples. While I have no affiliations, sponsorships, or financial relationships with any of them, I may personally hold positions in some of the investments discussed. Before making any investment decisions, you are strongly encouraged to consult a licensed financial adviser.

Interest Rate Outlook Triggering Market Recovery

Singapore’s long-suffering but high-yielding REITs are currently among the most attractive and significantly higher than those in most regional markets. A decline in risk-free rates from lower US interest rates would further enhance their appeal, making them an even more compelling investment choice.

The Dividend Uncle’s Take: Seize the First Mover Advantage

You heard me right. Now might be the perfect time to lock in these attractive yields. Yes, the NASDAQ is in correction territory and is moving lower. And global investors seem to be retreating with their tails between their legs.

But we know REITs are interest rate sensitive investments, and as interest rates are already on their way down, this will eventually push up REIT prices. And as REIT prices rise, dividend yields typically decrease, so securing these yields before the rally can provide substantial benefits. In addition, lower interest rates will reduce the financing expenses, potentially increasing their dividend payouts.

But we must not be indiscriminate in selecting where to put our hard-earned money, since higher interest rate expenses may stick around a bit longer. I’ve identified 3 quality, blue-chip REITs with current dividend yields of about 7%, that I will be very keen to lock in the yields right now.

Without further ado, let’s run through them.

First up, we have CapitaLand Ascott Trust. This REIT specializes in serviced residences and rental housing. Its portfolio is globally diversified and spans key cities in Asia-Pacific, Europe, and the Americas. The REIT’s strategy of focusing on long-stay accommodation has proven resilient, providing stable returns even during volatile times. The current yield of 7.3% is attractive, being at the highest level for the past 5 years, other than during the knee jerk stock market plunge during COVID-19 when tourism came to a standstill.

While the 1H 2024 distribution per unit or DPU fell by 8% due to divestments, ongoing asset enhancements, and depreciation of foreign currencies compared to the Singapore dollar, its assets have continued to benefit from the continued rebound in the hospitality sector. On a same-store basis, the gross profit and revenue increased by 3% and 4% y-o-y respectively, and key markets also performed at or above pre-pandemic levels.

Recently, CapitaLand Ascott Trust replaced its $150 million perpetual bonds, with interest rates rising from 3.88% to 4.6%. While this increase might seem concerning at first glance, the impact is relatively minor—approximately $1 million annually. To put this into perspective, this amount represents only about 0.4% of their full-year 2023 distribution of $237 million. 

Next, Frasers Logistics and Commercial Trust is on our list, offering a dividend yield of 7.0%. This is despite having one of the lowest gearing of 33.2% and average interest rate of 2.6% among the REITs. It is a top favorite among retail investors. Its portfolio consists of 112 logistics and commercial properties across Australia, Europe, and Singapore, with valuation of $6.9 billion. With a strong diversified tenant base, where the top 10 tenants account for less than 25% of its revenue, and strategic asset locations, it offers a stable and attractive yield. It is also poised for further growth, with an enormous pipeline of properties available from its supportive sponsor, Frasers Property Limited.

In its latest 2Q 2024 results, investors were happily reminded of why Frasers Logistics and Commercial Trust is among the most stable REITs. While other logistics-related REITs had a few bruising quarters, the Trust’s logistics and industrial properties registered rental reversion of 40.7%!

Now, third on our list is Mapletree Pan Asia Commercial Trust, which owns Singapore’s crown jewel, VivoCity. It benefits from high occupancy rates and prime locations of its other assets. Its dividend yield of 6.9% is supported by robust rental income from diversified tenants.

In its 2Q 2024 results, Mapletree Pan Asia Commercial Trust’s distribution per unit dropped 4.1% due largely to higher financing cost of 9.8% and weaker foreign currency exchange rate against the Singapore dollar. We are encouraged by the rental reversion which continued to be positive at 5.2%.

While it is currently suffering from investors’ jitters over the underperformance of its Hong Kong asset, our previous assessment showed that the market has undervalued the REIT as a whole.

There you have it, 3 quality REITs with a 7% yield that you should consider adding to your portfolio before the market rally takes off. As always, do your own research and consider your risk tolerance before investing. Don’t forget to like, subscribe to my YouTube channel, and keep a lookout for the latest posts on this website, so you won’t miss any updates. Until next time, happy investing!