Since then, I have been following the rules set in 2011 and have been quite satisfied with my portfolio performance and returns so far. It also gives me a more structured and systematic approach towards analysing and selecting stocks.
Back then, I was thinking about setting some rules for divestments as well. These rules would help me to identify overvalued stocks that I should probably sell to switch to better valued stocks. 2 years on, I finally decided to set some of these rules. The rules are again tied to dividend yields to allow more predictable returns on my portfolio.
- Dividend yield of less than 2%
- Dividend yield of less than 4%
- Gearing ratio of >50%
Again, I expect a higher yield from reits as their payout ratio is usually much higher than stocks. Using the benchmark yields above, I also hope to avoid a situation of frequent buying and selling as that is not the intent of my portfolio. I will only sell if a particular stock or reit has appreciated substantially beyond what I view as acceptable dividend yield. The gearing ratio for reits is taken into consideration as the gearing generally determines the potential for yield accretive acquisitions without issuing more equity. I will use these rules as guidelines and refine them as I go along.