A Complete Guide To Dividend Investing (And The Best Singapore Stocks To Start With)

With dividend investing, it’s possible to create a healthy passive income stream. Find out how you can get started and which stocks on the SGX are your best bets.

Having multiple income streams is all the rage these days, allowing working professionals to rely less on their salary while maximising opportunities to grow their wealth. There are no shortage of ways to supplement your income, whether it’s taking on a side hustle after work or renting out vacant rooms at home.

With a plethora of low-cost online brokerages available these days, it’s easy to get started. Even folks who only invest in an ETF passively tracking the S&P 500 would’ve seen an average annual return of around 10%. That comfortably beats Singapore’s inflation rate, by the way.

However, dividends that you receive on a regular basis from stocks can also transform into a passive income stream. The cash can then be reinvested or used for other purposes. Yes, that includes giving yourself a treat for constructing a successful portfolio.

Find out how you can kickstart your dividend investing journey and discover which stocks on the SGX have the best payouts.

• What is dividend investing?
• How much do I need to invest for a healthy dividend payout?
• Are there any downsides to dividend investing?
• Which SGX stocks have the best dividends?
• Conclusion

What is dividend investing?

First things first, there are a good number of folks who’d say dividend investing is the realest. That’s because dividend payouts are drawn from a company’s profits. Businesses that can afford to distribute dividends are usually performing well. If they aren’t, they can always choose not to pay any dividends out for that month, quarter, or even year.

Therefore, purchasing dividend-paying stocks adds stability to your portfolio. These stocks are usually blue-chips that have become household names, such as DBS, CapitaLand, and ComfortDelGro. On the other side of the Pacific Ocean, you’re looking at powerhouse corporations like Coca-Cola, McDonald’s, and Clorox.

Should you do the full monty and create a portfolio that consists solely of dividend-paying stocks, it, well, pays dividends. Firstly, there’s the security of investing in a host of profitable companies. Secondly, the payouts can be reinvested by purchasing even more shares in these companies. Finally, your dividends from Singapore-listed stocks aren’t subject to taxes for the most part.

However, this strategy isn’t foolproof and its downsides will be discussed later on.

How much do I need to invest for a healthy dividend payout?

According to the Department of Statistics, households had an average monthly expenditure of S$1,628 per member in 2018. To completely defray this cost for the year, a portfolio size of approximately S$517,300 across several blue-chip stocks and real estate investment trusts (REITs) on the SGX is needed. That’s financial independence right there, for one household member at least.

The figure looks intimidating because dividends comprise a small percentage of a stock’s price. Take Singtel for example. Although it garnered an impressive dividend yield of 9.15% in 2017, the actual amount disbursed per share was just S$0.20. If you wanted to use its dividends to fully offset your utility bills for that year, you had to own approximately 8,000 shares.

Carving out a sizable passive income stream from a dividend investing portfolio requires time, effort, and naturally, money. It might take a six-figure investment for you to achieve financial independence, but this doesn’t have to be done via a one-time lump sum deposit. Remember, it’s about how long you stay invested rather than being able to time the market.

Are there any downsides to dividend investing?

As mentioned earlier, dividend investing isn’t a foolproof strategy. For one, recall that dividends are derived from a company’s profits. This means that the firm has chosen to reward shareholders instead of expanding, whether it’s through exploring new markets or acquiring smaller companies for example.

As a result, you’re sacrificing capital gains when you create a portfolio that consists solely of dividend-paying stocks. For younger investors who have a long runway, this may not be ideal as you miss out on opportunities to discover stocks with high growth potential. This hurts twice over when companies halt dividend payouts during a crisis.

Then there are tax issues. Dividends from Singapore-listed companies are mostly exempt from taxes, but stocks listed on American exchanges are subject to a hefty 30% withholding tax. This greatly narrows the pool of businesses that you can invest in and essentially eliminates MNCs like the ones listed above.