Monday, May 30, 2011

Shipping Trusts in Singapore

A Spreadsheet says a thousand words

Although the distribution yields of shipping trusts are generally high, we have to be aware that a portion of the distribution is a fair compensation for the loss of value of the invested principal due to a decline in vessel value over the years(depreciation). The difference between a REIT and Trust is the underlying asset. REITs invest in land and buildings which will appreciate in value over time but give lower dividends. Shipping trusts invest in vessels which will depreciate over time but give higher dividends as a result of high risks. 

First Ship Lease Trust is my top pick due to the following reasons:

1) Highest dividend while trading near 52 weeks low
2) Stronger balance sheet at lower price
3) Most diversified shipping trust in Singapore(in term of its lessees and vessels)

However, we have to take note of the high gearing and the not so positive outlook on shipping trust in Singapore. For now, I will stay away from shipping trusts and focus more on stable dividend stocks.