Both UOB and UHRT released their results this morning. Since UOB takes up a much larger position in my portfolio than UHReit (5% vs 1%), I will briefly talk about it first.
UOB
The group has benefitted from the increase in its net interest income (NII), mainly due to the higher net interest margin (NIM) this year. Q4 NII is lower but that has been mitigated by the the increase in its fees and other non-interest income.
With this record earning, 85 cents final dividends is declared. Together the the interim dividends, that’s a total of 170 cents, which is 26% higher than previous year. While this is not as exciting as what DBS has declared, UOB has always been known to be conservative and it is likely they can sustain it going forward.
And at today’s closing price of $28.48, that’s a 6% yield which is really quite good.
NIM is decreasing, can they really sustain the dividend?
A drop in NIM does not necessarily result in a drop in NII or at least the drop might not be proportional. An example would be their Q1 to Q3 numbers. While NIM has dropped from 2.14% in Q1 to 2.09% in Q3, its NII has been fairly stable.
So as long as the drop is not too drastic, they should be able to mitigate it with the increase in their loan book and non-NII income. Don’t take my words for it but instead trust the guidance from the big boss.
What about FY2025?
I don’t know but my take is unless something drastic happens, they will try to maintain it. A look at their past dividends, they have not decrease it over the past 15 years (exclude special dividends and FY2020 due to MAS requirement). Not forgetting, they will be celebrating their 90th Anniversary in 2025.
I will be holding on to my current stake.
United Hampshire REIT
I am very new to United Hampshire REIT (UHRT) and have only become a shareholder since last September. I was attracted by its dividend yield then and took a small stake in it.
The first thing that I notice is the drop in DPU from last year and from 1H! That’s not a good sign. While I already notice the drop from 2HFY2022 to 1HFY2023, I thought it would have stabilised, but I guess I am wrong.
Management attributed to higher interest expense and additional loan to finance the acquisition of United Square. This year, there is also payment of management fees in cash and retention of capital reserves which was absent in 2022.
There are bright spots though.
They have no re-financing for the upcoming year and has an option to extend their loan for FY2025. Also, unlike Office sector which affected the property price, Self Storage and Strip Centre prices are holding well.
So will things turn around for the upcoming year?
I think it should not get worse but I am not too sure. Assuming 4.28 cents dividend for next year, then current yield is 9.3% and my cost yield is 10.1%. Still attractive but when I first bought it last year, the yield was around 13%!
I am likely to hold on to my small stake at the moment but if there are better opportunities, this is probably a counter that I will divest.