In the pursuit of growth, many investors may neglect dividend-paying stocks.
Growth stocks have always been touted as being more “sexy” as they offer the gaudy appeal of attractive capital gains.
Dividend stocks, on the other hand, are often portrayed as stable but boring.
Although this category of stocks lacks the glamour associated with their fast-growing counterparts, I’d argue that they do deserve a place in everyone’s portfolio.
No matter which age group or life stage you belong to, there’s always a reason to love dividends.
Not only do they represent a tangible return on your investment, but this flow of passive income can also help you to compound your wealth more quickly.
Don’t get me wrong, though.
I am not asking you to eschew growth stocks in favour of dividend-paying ones.
A healthy investment portfolio should, ideally, comprise a mix of the two as part of an optimal asset allocation mix.
Let me explain why.
The young working adult
If you’re a fresh graduate that’s heading out into the workforce, it can feel daunting.
Singapore reported core inflation of 5.1% in December, nearly the highest in 14 years.
The prices of goods and services are soaring, with the additional 1% increase in the goods and services tax not helping, either.
News of massive job cuts by big technology companies isn’t helping as such news creates more uncertainty.
Hence, it’s useful to park some money in dividend stocks to act as a small stream of additional income.
As you’ve just started out working, this sum will be understandably small.
It’s good to start small, though, as this amount can slowly build over time as you add more capital from your savings and bonus.
You can scoop up as little as 200 units of Frasers Logistics & Commercial Trust (SGX: BUOU) for S$272 or 100 units of CapitaLand Integrated Commercial Trust (SGX: C38U) for S$211.
These reputable REITs offer a trailing distribution yield of 5.6% and 5%, respectively, and can more than help you to beat inflation.
And as you grow the amount you invest, the dividend flow will also increase in tandem and help you compound your wealth.
Help for the sandwich generation
As you grow up, your responsibilities increase.
There is a group among us who feel the twin financial pressures of being in the “sandwich” generation, providing for both your kids and aging parents.
The term is derived from being caught in between both the young and the elderly.
Here’s where dividends will seem like a godsend as they help to add a layer of passive income on top of what you and your spouse are drawing.
If you’ve been diligently socking money away in dependable dividend stocks such as Sheng Siong (SGX: OV8) or VICOM (SGX: WJP), you’d be seeing a healthy inflow of dividends deposited into your bank account every year.
These dividends can not only tide you through tough times, but they also offer you the option to spend them on a nice meal or vacation for the family.
In short, dividends give you the flexibility to spend a little more to pamper yourself while helping to hold the fort during challenging times.
Coasting on a sea of passive income
And let’s not forget the retirees who have hung up their working shoes and are enjoying the fruits of their labour.
For this group, dividends are an essential part of their lives as they help to support the lifestyle they were accustomed to while they were working.
But to get to this idyllic level, you’ll need to steadily add money to solid REITs or dividend stocks over the years to build up your capital base.
At this stage of your life, you’ll want certainty, stability and peace of mind.
Blue-chip dividend-paying stocks such as DBS Group (SGX: D05), Singapore Exchange Limited (SGX: S68) and Keppel Corporation Limited (SGX: BN4) can provide you with assurance and a good night’s sleep.
Owning a smattering of well-managed REITs such as Keppel DC REIT (SGX: AJBU) and Mapletree Logistics Trust (SGX: M44U) can also fatten your pockets and keep the dividends flowing.
Your golden years should be spent sustaining human relationships and pursuing pleasurable hobbies, and dividends are thus integral to ensure that you enjoy the quality of life that you deserve.
Get Smart: Dividends for life
Dividends are desirable no matter which age group or life stage you find yourself in right now.
So why wait? Start investing now to enjoy the flow of dividends into your bank account.
If you’re looking to invest in 2023, our latest FREE report can guide you. It shows you how to find dividend stocks in SGX, and a nearly fool-proof way of building your portfolio. Many people love dividend investing, but few truly know how to profit from it consistently. Click the link here to download our new report and discover the secrets!
Disclosure: Royston Yang owns shares of DBS Group, VICOM, Frasers Logistics & Commercial Trust, Keppel DC REIT and Singapore Exchange Limited.