Monday, August 07, 2023

Which is more dangerous ? Dividends investing or dividends investors ?


A couple of weeks ago, someone from the 1M65 groups must have made some comment about dividends investing being quite dangerous. It triggered an outpouring of snark from the dividends investment community with some hilarious trolls flexing on the groups whenever they collected some money from their dividends stocks. 

I don't know the context by which the statement "dividends investing is dangerous", but from the point of view of someone tracking maximum drawdowns across the pandemic period, dividends strategies have dropped 40%+ during the crash of 2020, so the statement is not totally unsupported by the numbers. But I'm also not inclined to agree with that statement because more recent volatility measures have shown lower standard deviation for dividend counters. 

But just this morning, I've learnt how dangerous dividends investors really can be once you piss them off.

Today, I attended a Sabana REIT EGM, to internalise the REIT manager. A better report on the context can be found on SG Budget Babe's website here

To summarise what happened earlier this morning, REIT investors were sick and tired that Sabana REIT management is not aligned with their needs, so they voted to replace them with an internal manager.

From my perspective, this is a very good development because it signals to the other REITs that if they do not align their actions with the unit holder's best interests, they can now suffer the same fate as Sabana REIT. 

Here are some of my thoughts as I mingled with fellow unitholders:

a) Many REIT investors just want to be paid a regular dividend

I think we know by now that the market roundly punishes most REITs who declare rights issues willy-nilly. 

The folks with me today in the room reminded me of the folks mentioned in the book The Millionaire Next Door. In today's meeting, most of the folks who voted in favour of the resolutions to replace the managers are elderly folk who are very obsessed with their DPU. I'm very happy to actually witness these extremely savvy old hands in action. 

A key issue to the anger investors are feeling is that management tried to convince them to let ESR REIT absorb their assets for a lower value in the past, and subsequently, as the performance improved, investors felt betrayed by the managers for trying to deny them this improved performance this latest quarter, even as management tried to take credit for increasing DPUs. 

b) It was really an issue of justice over fear 

Somehow I met the elderly who are in support or against the resolutions. The folks against the resolution think that it affects their paycheck and don't want to rock the boat. The folks supporting the resolution want to mete out justice for not aligning with the best interests of the unitholders.

Another misstep by the Sabana management was that they kept emphasizing the riskiness of internalising the management team, which led to accusations of fear-mongering. This was quite unwise as dividends investors are very proficient at multiple sources of income. 

Eventually, some investors were shouting across the room that they are not kids and would not be so scared easily.

c) There are no illusions that internalisation will be very painful over the medium term.

I don't think the unitholders who are fairly experienced will ever think that the road to internalization will be an easy one. We are looking at a timeframe of over a year, and probably two more EGMs to get the matter behind us. No one here could also predict what would happen to dividends over the next twelve months, although the 7+% seems stable at the moment. But many investors like myself have owned Sabana since its IPO and we do not think that things can get any much worse. I should also note that it is actually very heartening and shrewd that Quarz Capital remains open-minded to hiring existing Sabana staff to the internalised entity.  

I asked a very vocal activist what will happen if the price dips tomorrow, he says he views it as an opportunity to buy more shares. Personally, I also share that same optimistic sentiment as it would be a rare gem of a REIT with internalised management in the future. 

Now I'm going to get to the most important part of the meeting this morning. 

What was the buffet spread like? 

I think the spread was much better than my last Sabana AGM which was many years ago. I was able to get for myself a full plate of Ayam Penyet with unlimited cups of coffee, effectively giving me a free lunch although you can argue that it's actually "ownself eat ownself". The Sabana team did not stay back to mingle with us, but I had a quick chat with Havard Chi of Quarz Capital. 

All in all, I absolutely enjoyed myself. 

The drama I witnessed today is as fun as the NUSSU EOGMs we had when I was an undergrad with colourful personalities and politics. I think that investors should absolutely participate in this rare form of democracy on this island. I would rate this higher than a trip to a zoo or even a theatre performance. 

This to me represents the real incentive to own local stocks under the CDP account as it will be parked under your name and as a shareholder, you have some teeth to teach REIT managers a lesson if they are not aligned with you.

Regardless of the future outcomes, we took a stand for our rights as unitholders and REIT managers should learn to be afraid of the investment community in the future.

This is a historic victory for the Singapore investment community and I am proud to have played a role in this. 

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