So I received this question from a reader recently: Hi FH, Interest rates have been dropping recently. And with the US stock market sell-off, DOGE cuts, tariffs, risk of a recession has gone up. Do you think this is a good time to take profit in my DBS bank stock? And rotate some of that […]
The post Will I sell DBS Bank stock and buy REITs for dividend yield? appeared first on Financial Horse.
So I received this question from a reader recently:
Hi FH,
Interest rates have been dropping recently.
And with the US stock market sell-off, DOGE cuts, tariffs, risk of a recession has gone up.
Do you think this is a good time to take profit in my DBS bank stock?
And rotate some of that profits into REITs instead?
If interest rates drop, there could be upside for REITs, and downside for banks.
What do you think?
Great question – and one that I have been pondering myself too.
So I figured let me take the chance to share my views.
DBS Bank share price remains very strong.
There was a small wobble the past few weeks due to the sell-off in US stocks.
But the share price has since recovered and is sitting close to all time highs.
For those with positions in other bank stocks – the chart for OCBC looks the same as well.
A mini selloff the past few weeks, followed by a recovery.
If you assume that DBS Bank will continue with the most recent 60 cents dividend payment.
And we annualise it.
That works out to about a 5.16% dividend yield, even at current all time high share price of 46.5.
That’s a dividend yield close to most blue-chip REITs, and about a 2.4% spread vs the Singapore 10-year yield.
Not too shabby.
The price action for REITs on the other hand – could not be more different.
While bank stocks have been trending up the past 2 years – REITs have been trending down.
That said, there are many tradeable cycles for REITs, such as early 2024, and late 2024, when interest rates dropped and REIT price jumped.
This would have provided opportunities for savvy investors to buy when sentiment around REITs is depressed and sell into the subsequent euphoria.
Note that REIT prices have rallied somewhat since the Feb/March bottom.
If you look under the surface however, the price action for REITs is pretty interesting.
The blue-chip REITs like CICT are trading at close to 2024/2025 highs:
Meanwhile, the small – mid caps REITs have not been doing so well and are still quite a bit away from their 2024/2025 highs.
This actually presents opportunity to pick individual REITs – assuming that you think the rally for REITs will continue to play out.
So… what’s driving the price action?
The crux of it – is market expectations over slower economic growth in the US, due to a combination of tariff uncertainty, and DOGE spending / job cuts.
When Trump was elected everyone expected a repeat of 2017 Trump with big rate cuts and government spending.
Instead we got tariffs and spending cuts, so some disappointment was in order.
The S&P500 is in correction territory.
And sitting below the 200-day moving average (after a failed breakout this week).
This is the first time since the 2023 rally that the S&P500 has closed below the 200-day moving average for a period of time – which suggests this current selloff is different from the previous ones.
Interestingly – you would have thought with fears of recession and economic slowdown.
We would see a big rally in US Treasuries.
But that hasn’t really happened to a big extent.
US 10-year yield sits at 4.38%.
This is probably why we haven’t seen a bigger rally in REIT prices.
It seems like despite all that Trump / Bessent are saying about cutting government expenses, the market isn’t really buying the story yet.
This was what I wrote for FH Premium subscribers earlier this week.
I figured I would share some of it here, so you have insights into my latest thinking:
In the latest FH Stock Watch, I shared my views on the probabilities for the various macro outcomes.
Broadly:
Economic growth slows
- With decline in inflation (recession) – 25%
- With inflation staying elevated (stagflation) – 20%
Economic growth stays strong / resilient
- With inflation under control (goldilocks) – 50%
- With inflation staying elevated – 5%
So base case is that things still stay okay (goldilocks is 50%).
But the probabilities of the other less pleasant outcomes have gone up quite a bit due to policies from the Trump administration (government spending cuts and tariffs – which will no doubt impact economic growth and inflation expectations, question is to what extent).
The key events that would influence the outcome going forward are:
- What are the substantive policies enacted by the Trump administration (including Treasury) on tariffs, DOGE cuts, tax cuts, government deficit etc
- How quickly Powell cuts rates if economic growth slows
- How do other countries react to Trump tariffs
- Whether China follows through on its fiscal/monetary stimulus
My Personal Views on how this plays out?
I’ve shared my personal views that I think Trump is happy with some short term pain if it sets the US up for mid term success, and so far a lot of messaging out from the Trump administration does confirm my thesis.
There was a great interview with Bessent (Treasury Secretary) last week on this – well worth the time to watch if you have some time: https://www.youtube.com/watch?v=lSma9suyp24 (thanks for the share – you know who you are!)
There was a line in the interview that really got my attention – Bessent recounted how the first time he met Trump, the first question posed to him was how to bring US government debt / deficits down without causing a recession.
And Bessent’s answer was that it takes some time – how if they cut government spending all at one go it will trigger a recession, so they do need to do it over a few years.
And how they are focussing on 3 key elements under the Trump presidency:
- Bringing down government spending (this is done via DOGE)
- Bringing down government employment headcount (again via DOGE)
- Drive economic growth through deregulation (this will increase tax revenue)
And at the same time – use tariffs to rejig America’s trade deficit with the world, and force more manufacturing to come onshore (creating more jobs for Americans).
Like I said, the interview is great and well worth the watch, as it gives you insights into the thought process behind the current Trump administration’s policies.
And so far at least, the messaging is pretty consistent across the board – do what needs to be done at the expense of some short term pain, for mid – long term gain.
The implications of this of course, is that all the reduced spending and tariffs uncertainty will create short term uncertainty – which is what you see being priced into stocks of late.
Assuming I am right on the above – and we get a short-term period of weaker economic growth.
Then this would play out as the reader described above, potentially some short-term weakness for banks, and potentially strength for REITs.
But I suppose the question is to what extent has this already been priced in by the market – and more how much juice is there to run in this trade?
Price action breakdown in the US is pretty interesting.
US regional banks are not pretty – down almost 15% from highs, and below the 200 day moving average.
That being said, the financial sector as a whole is holding up pretty well:
Here’s JP Morgan for example, you can see how the price action is very similar to DBS bank.
In that there was a sell-off to key supports, followed by a subsequent rally.
That said.
The Russell 2000 is absolutely terrible though – down 15% from highs and looking very similar to regional banks.
This is not a good sign – suggest the market is not bullish on US growth (small caps are more economically sensitive).
Follow Financial Horse to avoid missing any post!
My gut feel – is that the market has already priced in whatever news we have seen so far.
The question mark that the market is struggling to price in.
Is how serious is Trump on everything that he is saying.
Ie. – What happens next?
Do DOGE cuts continue for the next 6 months, or is the worst already over?
Do Tariffs against Mexico, Canada, Europe, China continue to escalate, or is the worst already over?
Trump talks a big game (he always does).
The tricky part is guessing which part is real, and which part is posturing.
My concern here, and which I have shared above, is that I think Trump is fairly serious about accepting some short-term pain, to enact the necessary reforms to set the US up for strong mid term growth.
The short term pain being:
- Bringing down government spending (this is done via DOGE)
- Bringing down government employment headcount (again via DOGE)
- Using tariffs to rework the global world order (to benefit the US)
And gut feel – I don’t think he’s done just yet.
I think the uncertainty will persist for a period of time, before Trump flips to being full on bullish.
And the S&P500 price action is really not pretty.
A selloff below the 200 day moving average, a failed breakout – I would really want to see how this plays out before upping risk exposure in a big way.
That said.
If investing has taught me anything.
Its that you need to have a view, and you need to position for it (because that’s how you make money).
But after you do all that, you prepare for the possibility that you are completely wrong.
Let’s say I’m completely wrong on the above.
The Tariff saga is over by April, DOGE cuts end in April, and what follows is rate cuts and huge government spending from Trump.
What happens next?
Actually in that scenario I would be pretty worried about inflation.
It seems that the fundamental constraint for Trump 2.0 is that he cannot increase the US government deficit too drastically, without a rise in inflation expectations (and causing long term yields to blow out).
So that scenario results in a sell-off too, if long term yields blow out.
And to give credit where credit is due – it does seem that Trump is aware of this constraint too.
What would be more interesting is some kind of middle ground approach.
Trump shifts the emphasis away from tariffs, and spending cuts, and allows rate cuts / government spending to take the centre stage.
Coupled with deregulation that could create a goldilocks kind of environment for stocks to do very well.
For what it’s worth, I do think this will happen at some point in the Trump administration.
The question is one of timing – Is it April or is it 6 months later, as that has big implications for how to invest.
Full disclosure – I own positions in both Singapore bank stocks, and in REITs (see my full portfolio breakdown on FH Premium).
I was actually meaning to add to my REIT positions with the Feb/March sell-off, but then life kinda got in the way and before I know REITs have rallied out of the hole.
So definitely I like REITs at the prices we saw a month or two ago.
But that said, I still find decent value in REITs today, especially in the small to mid caps which have not rallied as much (see my full REIT and Stock Watchlist on FH Premium).
Coming back to the reader’s question – I think it’s back to asset allocation and risk management.
You can see from the above discussion that while we will only see 1 outcome in reality, there is actually a broad range of probabilities that behind that.
So don’t invest on a binary basis – invest probabilistically.
And when facts change, just change your mind quickly.
If the portfolio is 100% bank stocks, 0% REITs, then okay I think it makes sense to diversify.
If the portfolio is 50% bank stocks, 50% REITs, then okay maybe it doesn’t make sense to change.
That being said, I am definitely overweight REITs relative to banks at the moment, simply because there where I see relative value today.
So… read into that what you will!
So I received this question from a reader recently: Hi FH, Interest rates have been dropping recently. And with the US stock market sell-off, DOGE cuts, tariffs, risk of a recession has gone up. Do you think this is a good time to take profit in my DBS bank stock? And rotate some of that
The post Will I sell DBS Bank stock and buy REITs for dividend yield? appeared first on Financial Horse.
