facebookWhat is the difference between distribution yield and dividend yield? Or are they basically the same thing? - Seedly

Min T

30 Mar 2020

βˆ™

General Investing

What is the difference between distribution yield and dividend yield? Or are they basically the same thing?

I'm looking at https://blog.seedly.sg/how-to-pick-the-best-sin... and it mentioned that distribution yield (#10 of the things to look out for), but in the https://seedly.sg/tools/reits table, it references only dividend yield. Are the two the same, or can I calculate one from another? Thanks!

Discussion (3)

What are your thoughts?

Learn how to style your text

Distribution yield should be = total dividends paid out / total distributable income.

Dividend yield simply = dividend per share / price per share.

Example: Reit X has total distributable income / cash flow of $1 per share (this is the amount of real cash profits earned by reit after expenses / tax and excluding non-cash items like property valuation gains). Reit X pays 90 cents per share in dividends, and so the distribution yield should be 90%.

The price of Reit X is $18, therefore dividend yield = 0.9 / 18 = 5%

Conceptually distribution yield would be similar to dividend payout ratio where the income part used as denominator can include non-cash items like depreciation and valuation gains. It's a measure of how much of its real cash profits being returned to shareholders.

Reits have to distribute 90% of their profits to qualify for the preferential tax treatment. Business trusts (ef accordia golf Trust) can decide the distribution yield / payout ratio based on their need for capital expenditure or working capital. If the business trust is loss making or opting to spend most of the cash profits into capex, your distribution yield can be rather low.

Dividend yield instead is kind of like a measure of the real cash returns you get from buying the reit (not including trading gain / loss). If you try to view the reit like a bond, and based on cash flows, dividend yield gives you an idea whether it is more worth to buy this reit compared to other instruments like ssb / fixed deposit. - eg reit x has dividend yield of 5%, so you get back 5 cents per year per dollar invested, ssb 10 year average yield is 1.6% for April issue, so I will on average get back 1.6 cents per year per dollar invested.

A more layman example: Ben's monthly take home income is 2000. After deducting the amount he pays his study loan, daily expenses, travel and shopping, Ben has gross savings = 500, and give his mum 50 to buy things to eat. His mum spent 200k to bring him up until he is of working age and don't need to support. To her, Ben's distribution yield = 50 / 500 = 10%; her monthly dividend yield = 50 / 200k = 0.025%.

Hope it helps.

Trust are not companies. They use different terms and work differently, albeit slightly.

Companies use dividends. Trust uses distribution. Essentially, they are the same thing.

Andy Sim

25 Mar 2020

HR Professional at a Financial Institution

The right term for Reits is Distribution Yield but I guess Dividend Yield and Distribution Yield is ...

Write your thoughts