Subscribe to our weekly newsletter and stay updated!

Love Dividends? Buy This Hang Seng Index REIT in 2022

Hong Kong stocks

Tim Phillips

January 3, 2022

Share this

It’s been a challenging year for investors in China stocks, to say the least. That’s been particularly true for Hong Kong’s stock market – home to many of China’s tech giants.

That’s mainly because of a sustained crackdown on the anti-monopolistic practices of these behemoths, which has seen them land on the wrong side of President Xi Jinping’s vision of “Common Prosperity” for Chinese society.

As a result, the benchmark Hang Seng Index in Hong Kong fell 14% in 2021 – marking its worst year in nearly a decade.

Yet among the rubble of discounted technology stocks, there are also companies in Hong Kong that are both robust businesses and pay shareholders a dividend.

For investors in Singapore, they’ll be glad to know that one of the Hang Seng Index’s constituent stocks is a real estate investment trust; Link REIT (SEHK: 823).

And like Singapore, Hong Kong has a zero dividend withholding tax for shareholders of stocks. With that, here’s why investors should consider buying Link REIT in 2022.

Hong Kong’s rock-solid property play

Similar to Singapore, many of the “old-school” property developers in Hong Kong have seen dismal performances of their share prices over the past decade.

Yet one area has stood out; REITs. That’s because REIT managers are there to serve unitholders by growing its distribution per unit (DPU).

This is in stark contrast to property developers in Hong Kong, who have been notoriously stingy with their dividend payouts over the years as they buy increasingly expensive plots of land to develop projects on.

Enter Link REIT. The REIT was actually spun out by the Hong Kong government with assets owned by the Hong Kong Housing Authority.

Many of these properties were in fact suburban shopping malls and wet markets that served public housing estates in Hong Kong.

Over time, though, the REIT has grown its portfolio to 129 properties in Hong Kong and 14 properties overseas, including in China, Australia and the UK.

Payouts can be counted on

Over the past decade, Link REIT has delivered a total return in excess of 260% to unitholders. That’s nearly triple the 86% total return that the Hang Seng Index has delivered over the same timeframe.

One of the big reasons for this has been the popularity of REITs globally amid uber-low interest rates but also Link REIT’s size. It has a huge portfolio valued at HK$221 billion (US$28.3 billion).

Even amid the fallout of Covid-19 and its impact on the global economy, Link REIT incredibly kept both its net property income and DPU profiles stable and they’re now back on a growth trajectory as of its latest half-year (see below).

One of the key reasons its local properties have held up in Hong Kong – amid a “Covid-zero” policy – is that nearly all its properties serve local communities and not tourists from Mainland China.

Link REIT DPU property income

Source: Link REIT investor relations

Link REIT is also allaying investor concerns of concentration in Hong Kong/China by venturing to overseas markets such as Australia and the UK.

It recently acquired a 50% interest in three retail properties in Sydney while it made its first UK acquisition last year by purchasing commercial property 25 Cabot Square for £380 million.

Stability amid volatility

Given the volatility that has been present in the Hong Kong market in 2021, Link REIT provides a bastion of stability in terms of its growth potential and dividend reliability.

For Singapore dividend investors looking for international REIT exposure that comes with zero dividend withholding tax, then Link REIT looks like the way to go.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.