Investing in Thai stocks for dividend income

[roberta]

I live in Bangkok on a non-immigrant visa, extended annually. I am retired, but without any pension or other retirement income. I have an investment portfolio under discretionary management in the UK, but returns are disappointing and have recently been overwhelmed by the fall of UKP/THB exchange from a high of 56 last year to a recent low of under 48. The volatility of this exchange rate is a constant source of concern and anxiety to me.

I want to bring some of the money here and invest it in securities denominated in Thai baht. Fixed interest is unsuitable as the rate is too low to provide an income sufficient to meet my modest requirements. I am considering purchasing a number Thai stocks having reasonable price stability and high dividend yield. With about 10 such stocks I could achieve, at current yields, a return of about 7-8%, which is more than adequate. There is a price risk, of course, and the yield is likely to fluctuate, but if recent performance is maintained these stocks would answer my requirements. My risk tolerance is low because I have only my savings to live on. But bank interest is too little to meet my needs.

Now for my questions:

1. Does this sound like a good idea? Bad idea? Can anyone suggest a better idea for a stable income investment? Any other advice?

2. If I wire transfer the foreign currency to my bank, and it is converted here by my Thai bank into a few million baht, which I then invest somehow, will I be able to send the money abroad again if I should need to? I don't have any plans to leave Thailand, but permission to remain has to be renewed annually and there is no assurance that this will be repeated indefinitely. What about any profit from the sale of stocks, or savings from the income? Can that be sent abroad also. I have heard about the Foreign Exchange Certificate, and will ask my bank to provide one. Is this what I need to make sure I can take the money with me if I have to leave at some future time?

[wordchild]

What about Singapore? Minimal issues moving funds in or out: better quality companies to invest in: minimal exposure to what could be a problematic Thai political/economic situation: also has a range of dividend paying stocks esp if you don't mind reits (real estate trusts): sing dollar and baht are pretty highly correlated so your Thai costs would still be hedged.

Another thing to bear in mind is that Asian companies in general and Thai companies in particular are less concerned about preserving a stable dividend record ( than UK ones) and will usually ( and probably sensibly ) focus on targeting a payout ratio so dividends tend not to be maintained when profits fall. You would need to factor this into your thinking when looking at the equity yields on offer in any Asian market.

Edited April 23, 2015 by wordchild

[wordchild]

I would also be concerned about the baby and the bath water scenario as far as your UK stocks are concerned. the UK is still one of the better value world stock markets esp in terms of the yield available, which is also tax free for a non resident investor . Maybe consider retaining your portfolio in the UK, but focus on UK listed international companies paying dollar denominated dividends so should be less of a volatile income stream relative to the baht. There are a few of these and also a number of these offer attractive yields ( better than you would get in Thailand in the main ) eg Rio, Royal Dutch, BHP etc You could also invest via the UK in some Singapore, HK and even Thai stocks. There is not any particular tax advantage, for a non res, in having the portfolio based outside the UK other than certain inheritance tax considerations. But this doesn't seem to be your main concern.

Edited April 23, 2015 by wordchild

[AyG]

OP, you state you can make a 7-8% return on Thai stocks. If you look at the constituents of the SETHD (High Dividend) index none of them has a yield as high as that. The highest (BECL) yields 6.29% (Source: http://siamchart.com/stock/SETHD ). To get that sort of yield you need to be investing in smaller, dodgier companies with a significant risk of them ceasing trading or dropping the dividend. Not really a good idea. And certainly not consistent with "my risk tolerance is low". It would be more prudent to aim for an average yield of 4%. That said, no equity investment meets the criterion of "low risk".

You should also diversify your investments by sector as much as possible. One possible strategy would be to buy the highest yielding stock in the SET100 in each sector (agro, financials, industrials, etc.). However, you'd need thoroughly to research each stock to understand why the yield is so high. It's often a sign of a company who's share price has dropped dramatically because of significant problems and therefore is unlikely to be unable to maintain the dividend, so should be avoided for your purposes.

A simpler approach might be to buy a SETHD ETF such as https://etrade.one-asset.com/ThailandMutualFund/ETF/Prospectus/R010106.pdf which will give you instant diversification. It currently has a dividend yield of 3.56%. Note, however, that the expenses are eye-watering for an ETF at 1.06% + VAT.

As for "any other advice":

(1) Your financial situation sounds precarious - no secure income, adversely affected by a minor fluctuation in exchange rate. (In the last few years the exchange rate as fallen from the mid-70s to below 45. The recent wobble is insignificant in comparison.) I would seriously question the wisdom of your moving to Thailand based upon what you've posted. How would you handle the costs of, say, a major medical emergency?

(2) You also appear to be financially inexperienced - getting a financial advisor to manage your investments. Are you really up to screening individual Thai stocks (particularly where much of the information will be in Thai)?

(3) Start managing your own investments. This can dramatically cut the amount of return that is being syphoned off by (a) the financial advisor, and ( the wrap platform. (On GBP 60,000 Transact charges 0.5%/year, i.e. GBP 300. Trustnet Direct charges a maximum GBP 200/year however much your investments are worth. Your financial advisor is probably taking in the region of 0.5%/year, too.)

(4) You're very much on track with wanting to match the currency of your income to your expenditure. You also should align your investments to the local economy - not specifically Thailand, that's too narrow, but to SE Asia and to Asia Pacific. It's a pretty sure bet that your financial advisor is not doing this, and is tailoring your portfolio to the UK. (Most financial advisers these days select from a range of predesigned portfolios for various risk and income levels - they aren't offering a truly bespoke service tailored to your specific needs.) Your financial advisor also is probably mostly/exclusively using funds rather than the lower cost Investment Trusts and ETFs.

(5) Find a wealthy man and marry him.

[wordchild]

I think the key point is that there is no need to transfer your investment portfolio into Thailand in order to achieve what you seem to want ie a better alignment between your investment income and your spending needs in Thailand. Transferring your portfolio here would just add another layer of risk that you dont need. I think AYG is right, a serious chat with whoever is managing your potfolio about your requirements maybe the best place to start.

[monkeycountry]

Several Thai property funds / REITs on the SET give around 7-8% dividend yield and are generally very stable (no guarantee obviously). I am guessing that is what you (OP) are looking at.

There is no capital gains tax in Thailand, but you will have to pay 10% withholding tax on the dividend yield. However, if you have no other income in Thailand, and we are only talking a few million baht investment, then you can apply for most or all the withholding tax to be returned to you by filing a tax return at the revenue department.

Yes, you can transfer the money abroad, both your initial investment and your profit.

[AyG]

Several Thai property funds / REITs on the SET give around 7-8% dividend yield and are generally very stable (no guarantee obviously). I am guessing that is what you (OP) are looking at.

The problem with Thai property companies is that they only invest in a very small number of properties - often just one or two.

The property funds are often spun off from some other business activity to free up capital. It remains questionable whether they are run for the benefit of the original business, or for the shareholder.

In time the properties typically become run down and less attractive to tenants, so vacancies increase/rental income falls and so dividends fall.

Personally I haven't found a single Thai property company listed on the SET I would be happy to invest in. I find Singapore a happier hunting ground, but that introduces exchange rate risk which the OP doesn't want.

[darren84310]

Please see your inbox.

[Estrada]

I invested B6,000,000 in the SET stocks in 2009 and have made B36Million by investing in trustworthy stocks with an upside to valuation of around 39% and a dividend aorund 6-8% plus. There are probably only around 10 stocks that will give you around 20%+ return per year (combined Dividend and increase in Value). BTS has a 30%+ upside and guaranteed dividend of around 8% this year. Ridership is at near record levels and should surpass 20Million trips per month in the coming months, which means more profit. I bought BTS at B0.70 and sold at 10.30. I have bought back at 9.05 and expect it to reach 10.40 in the coming months. It should return at least 20% in the next 12 months. Advance(AIS) and parent Company Intuch are a good long term bet with a dividend aorund 6.6% and I even got 17.5% dividend from Advance in a previous year. Telecom shares are a good bet for long term investment as they are likely to shoot up towards the end of the year due to the 4G auction.

I just checked my records and I am averaging 5% return/month this year on my investment in Thai Stocks.

But remember to buy low, sell high.

Also get out of stocks worldwide in 2018. because there is likely to be a stock market crash as has happened every 11years. The last one was in 2008 prior to that there was 1997 etc etc. Get back into stocks after the 2018 crash at bargain prices and ride the cycle again.

Finally... Steer clear of financial consultants especially in Thailand.

Edited April 24, 2015 by Estrada

[bazza40]

Several Thai property funds / REITs on the SET give around 7-8% dividend yield and are generally very stable (no guarantee obviously). I am guessing that is what you (OP) are looking at.

There is no capital gains tax in Thailand, but you will have to pay 10% withholding tax on the dividend yield. However, if you have no other income in Thailand, and we are only talking a few million baht investment, then you can apply for most or all the withholding tax to be returned to you by filing a tax return at the revenue department.

Yes, you can transfer the money abroad, both your initial investment and your profit.

Property funds are extremely risky, no matter where the country is. That's why they pay 7-8% yield, to pull the suckers in. They are frequently linked to property developers, who have any number of reasons why a project went bust, taking investor capital with it. It usually only takes one or two bad decisions by a board to send a property fund bust, due to the large capital they commit.

If you can afford it, you are much better off purchasing one or two condo units and renting them out. Ignoring any capital gain, yields in Thailand seem to be in the 6-7% region before expenses such as condo management. Obviously you would have to research items such as condo condition, occupancy rate and location very carefully.

Buying shares on the basis of their dividend yield alone is a high risk strategy. Parameters you need to look at include whether the company has a history of stable or increasing dividends. Payout ratio is important - there's only a short-term benefit in companies maintaining dividends from reserves, not profits. Companies with high debt are a no-no. The best companies will have positive cash flow and demand for their products regardless of what the local or global economy is doing.

[NickJ]

Great advice from Estrada......Have nothing to do with any "financial advisors" from Thailand......

[roberta]

Thanks very much for all the replies so far. I think I need to answer a few points which have been raised.

I have asked my portfolio manager, before opening the account and again more than once, to reduce my currency exposure as much as possible. It is not an "off-the-shelf" portfolio, but specifically designed for my circumstances. It is very expensive. The total I have paid in management fees and expenses has been almost equal to the gain in value which I have enjoyed. After nearly 4 years I am up about 30%, but almost half of the gain has been wiped out in practical terms by the fall of the pound. Now it looks as if the election in two weeks time is also likely to negatively impact the exchange value of the pound even further. I have not so far made any withdrawal from this account, but it will soon become necessary to do so.

I have no secure income. I worked as an independent contractor for many years, and saved a much as I could, in the expectation of earning interest on fixed-term bank deposits to fund my retirement. This plan has obviously failed, and I need a new one. I have already lived in Thailand for about 2 years. Allowing for inflation I believe I could survive here for about 10 years before I run out of money - if I convert all my capital to baht now. My life expectancy is probably longer than that, so I need to make some income. A 6% ROI would be enough I think to meet my living expenses for the foreseeable future, and keep up with a modest level of inflation. So I am trying to achieve this figure, with an investment in baht, so I don't have to worry about currency exchange. I do already have insurance against major medical expenses.

Marrying a rich man would be a great solution, but he would have to be blind! Next year I shall be 70....

Using siamcharts.com I made a filtered list of stock with a dividend yield of at least 7% and a market capitalization of at least 5 billion baht. There are 14 such stocks, and the average yield is 8.5%. I have ruled out some of them, like DTAC, after looking at the charts. But others would appear to be suitable, as the price has been stable for some time, or slowly rising. So I think this could work. I know for sure that if I do nothing then I will run out of money at some stage. Some risk is inevitable, but is better than the near-certainty of disaster. I would also like to add a few growth stocks to possibly benefit from a future political solution in this country.

I have not previously considered Singapore. I know nothing of the market there, have no bank account there and no brokerage account. I do not know if it would be possible for me to open such accounts. A quick look at a chart shows that the SGD has fallen quite a lot since last year against the baht. Then I would have currency exchange expenses, wire transfer costs, etc. It sounds too complicated. And yet another currency to worry about. I do not handle this kind of anxiety well. Fixed-term bank deposits are what I am comfortable with. But I have to do something else; I have no choice. But I want to be able to sleep at night

[wordchild]

if you want to sleep at night i would not bring the funds into Thailand and invest in a few stocks that have been thrown up by a dividend yield screen! AYG, for example, makes a great point above about the quality of quoted property funds in Thailand which i would agree is generally pretty poor and where (in some cases) the apparent high yield comes with risk ie the dividends (and yield) are not sustainable. I think this is also the case for other areas of the market too.

IMO now would not be the time to invest in the SET (Thai stock market) without a deal of care and reasonable level of knowledge , and i speak as someone who has had significant investments (and made good returns) here in the past.ie i am not a perma-bear on this country.

It sounds to me like your best bet could be to change your wealth manager (or whatever they are) to someone better (or more in tune with your needs) and cheaper; but as others have said above stay well clear of any Thai based ones.

Edited April 24, 2015 by wordchild

[vcpeters]

I live in Thailand and invest in US REIT's (Real Estate Investment Trusts) - they must pay a certain percentage dividend. I get a check every 3 months. Last 5 yeas around 8% to 11%. My favorites are NRZ and NCT.

See http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=NRZ&insttype=Stock

[AyG]

I live in Thailand and invest in US REIT's (Real Estate Investment Trusts) - they must pay a certain percentage dividend. I get a check every 3 months. Last 5 yeas around 8% to 11%. My favorites are NRZ and NCT.

See http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=NRZ&insttype=Stock

Terrible recommendation for the OP. Will be subject to US withholding tax (typically 15-30% depending upon the type of holding account), and subject to foreign exchange risk.

[orange31]

Maybe now isn't the best time to covert your savings to Baht as the pound is weak and Baht strong. I appreciate your concerns but generally I find these things balance out and chances are the Baht will fall against the pound at some point. The Thai economy hasn't been great this year and I fear more problems to follow in the coming year or two.

You've taken the brunt, it's unlikely to get much worse and you don't want to find youself selling pounds at the bottom.

Edited April 24, 2015 by orange31

[happydays]

Like the OP I too live in Thailand & rely on my investments for income. I've been investing for about 3 years which is not long I know but for what it's worth here is my experience so far. My portfolio is split 50/50 between Thailand & the UK as I felt uncomfortable bringing all my money into Thailand. I decided from the beginning not to use financial advisors (I'm too stingy to pay their fees) & as others have already said be very wary of financial advisors based here in Thailand.

UK

I invest in Investment Trusts (ITs) as they have lower fees than unit trusts & their shares are traded on the Stock Exchange so they are highly liquid. My portfolio is highly diversified both geographically & by asset class (shares, bonds & infrastructure) and it currently yields about 7%. A good source of information about ITs is the Association of Investment Companies (www.theaic.co.uk) along with sites such as Morning Star. Before investing in ITs it's important to understand about premiums/discounts, it's not complicated & an afternoon on Google will tell you everything you need to know.

Thailand

My Thai portfolio is split 50/50 between company shares & property/infrastructure funds and also yields around 7%. The good news is that broker fees are very reasonable (I use KT-Zmico & Siam Commercial Bank Securities). However my experience has been that the Thai stock market is highly volatile & dividends tend to fluctuate. Having said that, as long as the overall portfolio yield remains at 7% I'm happy & I try not to look at share prices too much. Property funds will not provide you with decent capital gains but they tend to be less volatile when the overall market is falling.

If you bring your funds over to Thailand & investment them all in a short period of time you run the risk of mistiming the market. The usual way around this is to spread your share purchases over say 12 months but since you need the income you probably can't do this. I've taken some profits & am currently sitting on the cash as I believe that when the US starts to raise interest rates (later this year?) there will be significant capital outflows from Thailand which will then be a good time to buy (I'm no expert so don't take my word for this). Also, a Greek exit from the Eurozone will have global repercussions so there may be better opportunities to enter the Thai market.

Best of luck.

[khunPer]

Often a good idea to have the money invested in the currency you are going to spend the money in.

I have some of my savings invested in equity here, average net dividend has been little over 5 percent pro annum, plus there has been some nice increase in the total portfolio value.

Picking stocks or mutual funds is a question of what risk you are willing to take – stock market goes up-and-down, but viewed in long term “only up”.

When transferring money into Thailand, equivalent to 50,000 USD you will need to report the transfer – think you can do it from equivalent to 20,000 USD – and that form used for reporting, be sure to received a verified copy from the bank, that takes normally about a week, which will make you eligible to transfer similar amount out of Thailand. Presume some other forum-members can advice you the form-name and limit of amount.

Wish you good luck...

Edited April 24, 2015 by khunPer

[jcnbkk]

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I live in Thailand and invest in US REIT's (Real Estate Investment Trusts) - they must pay a certain percentage dividend. I get a check every 3 months. Last 5 yeas around 8% to 11%. My favorites are NRZ and NCT.
See http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=NRZ&insttype=Stock

Terrible recommendation for the OP. Will be subject to US withholding tax (typically 15-30% depending upon the type of holding account), and subject to foreign exchange risk.

True. Ah, the uncertainty of the markets, and the certainty of US taxes.

[wordchild]

if you do decide to invest in Thai stocks dont forget to buy either foreign register or in nvdr form otherwise you could be at risk of not receiving your dividends. This is easy to arrange and can be sorted out by the broker at the time you trade.

While i am pretty negative on the Thai political/economic outlook I would agree that there are some companies that are worth considering (i just wouldnt put all your funds here). Estradas suggestions above are not a bad place to start.

[Time Traveller]

All of the replies I've read so far on this topic are complete garbage. 100% trash and I doubt any of those people have invested in any Thai stocks.

I've been doing it for almost 20 years, and I can say Thailand provides as good a protection for investors as anywhere. I've seen much worse dodgy behaviour by companies in the Australian and the US stock markets than I've ever seen in Thailand.

To the OP, I will leave it up to you to decide which stocks to buy but here are my tips that are relevent to Thailand if you do decide to buy Dividend Paying stocks.

If you are living in Thailand over 180 days, then you are considered a Thai Tax resident. This is important because if you are able to file the tax return you will get a nice return from your stock dividends at tax time.

First, to do so you will need to own the Foreign Shares of whatever dividend stock you decide to purchase. This gives you the exact same right as Thai shareholders. Usually you would buy NVDRs and then convert to Foreign shares. You broker can help you with this and explain what NVDRs are.

NOTE: NVDRs are not treated the same as shares for tax purposes. This is important because if owning NVDRs your dividend will be taxed at 10% and you won't be eligible for any favorable tax benefits.

There are two favorable tax treatments for dividend investors in Thailand.

1. The first is that some companies with BOI promoted activities are eligible for tax exemption. That is, their profits are exempt from tax. What this means is that such dividends are exempt from the 10% withholding tax. But only if you actually own the (foreign or thai if you are thai) shares of the company. NVDRs would lose 10% of their dividend to tax

2. Secondly as far as the Revenue Department is concerned, all shareholders (not NVDR holders) are allowed a tax credit for the corporate taxes paid by the company before if paid out the dividend. This rate varies between different business activites, but for most companies is 20%.

These tax credits allow you to get a nice refund at tax time.

Let me give you an example:

If you get dividends from thai stocks in the amount of 140,000 baht in one year. You would ordinarily pay 10% to withholding tax and be left with 126,000.

However, if the dividends were from companies with corporate tax paid at 20%, then file a tax return.

The would then scale up your dividend according to the tax rate paid: 140,000 / (1 - 0.2) = 175,000

The difference being the tax credit 175,000 - 140,000 = 35,000

You will also be able to claim as credit the withholding tax, so total tax paid will be 35,000 + 14,000 = 49,000

In calculating your return, your income would be 175,000 (the scaled up amount),

but you tax payable would be zero since you will have a 30,000 baht exemption, and 150,000 baht or less is taxed at 0%.

The result would be you get a refund of 49,000 Baht !

What this means is that a 6% thai dividend yield is really 7.5% when considering tax credits at at 20% corporate tax rate.