Singaporeans are known for their love for dividend stocks.
The local stock market is well-known for being a dividend-lovers paradise as the country charges no taxes on dividend income.
The wide availability of REITs as a dependable income asset class further bolsters this image, along with the myriad of dividend-paying blue chips that form the bulwark of the benchmark Straits Times Index (SGX: ^STI).
While dividends undoubtedly provide a tangible return on your investment, they may not be enough.
You may want to consider adding some growth to your portfolio to enjoy a larger nest egg by the time you retire.
But growth, one might argue, comes with higher risks.
There is also another way to look at it.
And that is: missing out on growth is much worse than experiencing a little more volatility within your portfolio.
It doesn’t have to be all or nothing. Here are some ways you can include growth within your portfolio.
An attractive mix of growth and dividends
The great thing about stocks is that they come in all shapes, sizes and types.
Rather than looking for a pure growth stock that does not pay any dividend, you can look for stocks offering a healthy mix of both.
Of course, such stocks may not enjoy as high a dividend yield as what the REITs are paying.
The upside is that these stocks possess growth potential that could propel their share prices higher in five to 10 years.
Some examples of stocks that provide a healthy mix of dividends and capital gains are iFAST Corporation Limited (SGX: AIY) and UMS Holdings Ltd (SGX: 558).
iFAST is a fintech company that has seen its share price leap six-fold in the last five years, all while paying out a regular dividend.
Meanwhile, UMS provides equipment manufacturing and engineering services to manufacturers of semiconductors and related products.
The group has consistently paid out quarterly dividends.
Currently, its trailing 12-month dividend comes in at S$0.054.
At the same time, UMS’s share price has risen 160% in the past five years.
The two examples above constitute the middle ground you can take in selecting stocks with healthy growth prospects while dishing out a dividend.
Sizing your portfolio accordingly
Of course, nothing is stopping you from including pure growth stocks within your portfolio.
These stocks generally do not pay out a dividend as they reinvest all their earnings into growing the business.
The US stock market is fertile ground for hunting for such stocks.
To protect your portfolio’s exposure to the volatility inherent in such growth stocks, you can choose to size the position smaller.
Artificial intelligence (AI) stocks such as Meta Platforms (NASDAQ: META) and Palantir (NYSE: PLTR) may sound sexy, but expectations are also high as they ride on this AI wave.
What does this mean for investors?
Potentially, their share prices could fall should the business report earnings that do not live up to expectations.
By sizing your position smaller, you can participate in any upside while limiting your portfolio’s downside.
Get Smart: The allure of growth stocks
While protecting your portfolio and guarding against risks is an important task, you cannot deny the allure of stocks that can compound your wealth over years or even decades.
Dividend stocks may be great paymasters, but their inherent nature means that significant capital gains are usually elusive.
To enjoy a long runway for compounding, you can either identify sticky trends that are here to stay or look for solidly run companies that reinvest their earnings at high rates of return.
Both types of stocks can deliver outsized capital gains if you hold them long enough.
An enticing theme is cybersecurity as more and more corporations digitalise and utilise cloud computing to achieve greater levels of efficiency.
Two of the players within this space, Crowdstrike (NASDAQ: CRWD) and Zscaler (NASDAQ: ZS) delivered returns of 352% and 390%, respectively, in the past five years.
The e-commerce tailwind continues to be as relevant today as it was several years ago, allowing Latin American e-commerce player MercadoLibre (NASDAQ: MELI) to enjoy a near-five-fold increase in its share price since early 2019.
Even behemoth Alphabet (NASDAQ: GOOGL), famous for its search engine and YouTube video-streaming site saw its share price rise 177% in the last five years.
There are many more examples and these are just the tip of the iceberg.
With a higher risk profile, you may have to monitor the business a little more closely or size it smaller within your portfolio.
But seeing the many opportunities out there to include growth, it is a happy problem for you to choose which stocks you wish to add to your portfolio to enjoy this growth.
If you’re wondering about how you can leverage AI in your investment portfolio, and how it can boost your portfolio, good news! We just released an urgent Special Free Report to cover everything you need to know about AI and its implications for investors. Find out which listed companies are actively using AI to power their businesses and what you should do to prepare for the AI boom. Click here to download your free report now.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Royston Yang owns shares of iFAST Corporation, Meta Platforms and Alphabet.
