Last March, the Philippine Stock Exchange created the PSE Dividend Yield Index. A group of 20 listed companies with consistently high dividend yields, a large free float, and sound financials.

Among the companies with the largest weighting on this index are PLDT, ICTSI and Metrobank. Not surprisingly, AREIT was included in this as well. Other well known companies in this index are Abotiz Power, BPI, DMCI, Globe, GMA, Manila Electric, MPIC, and Universal Robina.

It won’t be long before a mutual fund or ETF that tracks this index is launched and it will certainly attract the interest of dividend focused investors like myself. The main difference with REITs and this index is the fluctuations in the payouts. In contrast to REITs, these companies are not required by law to pay dividends. The dividends that they hand out will also go up and down because of cycles inherent in their businesses. For example, DMCI has a coal mining business and the recently high coal prices boosted its earnings and therefore dividends. Another example would be the increase in GMA’s earnings because of election campaign-related spending. Although a REIT is exposed to tenancy and vacancy risks that could reduce its earnings, the dividend volatility won’t be as much as the non-REIT companies since earnings from leasing space tend to be more predictable and stable. Compared to REITs, however, I suspect this index will have a higher price appreciation over time.

I could not actually find the dividend yield nor the dividend per share (DPS) growth for this new index. However, its top member, telecom giant PLDT, has a yield of 5% and a DPS growth of 7% – which is quite comparable to REITs.