Corporate Action Strategy For REITs


Screenshot from EC World REIT homepage


Key Highlights:

  • EC World REIT and BHG Retail REIT are going Ex-Date next week

  • The indicative yields are 7.2% and 9% for BHG and EC World respectively

  • Does Corporate Action Play make sense for these two REITs?


Background:


EC World REIT is going Ex-date on 2nd Sep with a dividend per share of S$0.01547. This amount will translate to 2.12% of dividend return based on the current price of S$0.73. You can refer here for the key financial ratios.


Does corporate action play make sense for EC World REIT?


Corporate Action Play
A strategy to buy the stock before Ex-date, collect the dividends and sell off the shares after the Ex-date. The main objective is to capture the dividend returns, hoping that the price remains the same. However, in most of the time, the price will drop to a price, which is equivalent to the dividend amount on the Ex-date.

Let's look at the historical performance of trading EC World REITs using a simple corporate action strategy


Assumptions:

  • Buy the shares one day before Ex-date

  • Try to close the trade at entry price after Ex-date

  • Close the trade before the next dividend payout

With the assumptions stated above, below is the historical performance.



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