When I was young, I enjoyed playing at the park.
In a time where there were no digital distractions, we immersed ourselves in nature and our surroundings.
As I walked along the winding roads, my cousin and I would stop and pick up bright red saga seeds.
The aim was to collect as many as we could to fill up a glass bottle or to use in arts and crafts.
Saga trees, where the saga seeds come from, drop food pods containing their signature seeds every six to eight months.
In other words, you could not always find saga seeds littering the roads and grass.
The opportunity to collect them comes just twice a year, making it an exciting affair for us to scoop up as many as we could.
The beauty of dividends
Like the saga tree dispersing its pods, companies also pay out dividends periodically.
While saga seeds are mainly ornamental – they have no useful function other than looking pretty and ending up as part of kids’ art and craft, dividends, however, can be used in a myriad of ways.
You can choose to spend your dividends on a nice holiday or delicious meal, save them for a rainy-day fund, or reinvest them in the very same stocks that paid them out.
Many companies, such as blue-chip local bank OCBC Ltd (SGX: O39) and property developer Hongkong Land (SGX: H78), pay out dividends twice yearly.
But you need not limit yourself to only receiving dividends at fixed times of the year.
There are real estate investment trusts, or REITs, that pay out quarterly dividends, such as Mapletree Logistics Trust (SGX: M44U) and Suntec REIT (SGX: T82U).
Elsewhere, non-REIT companies such as iFAST Corporation (SGX: AIY) and DBS Group (SGX: D05) also pay out quarterly dividends, helping you to receive those dividends four times a year instead of two.
And if you are looking to stagger the timing of those dividends, you can invest in companies with different fiscal year-ends.
Some examples include dividend stalwarts Boustead Singapore Limited (SGX: D9D), which has a 31 March fiscal year, and Frasers Logistics & Commercial Trust (SGX: BUOU), which has a 30 September fiscal year.
With a collection of such stocks, it will be like receiving “a dividend salary” nearly every month of the year.
Accumulating your bottle of dividends
The key to building a great dividend portfolio is to stay focused at the task.
By allocating money to dividend-paying stocks, you will receive a flow of dividends as a form of passive income.
As you save more from your salary and/or bonuses, you can then pour more money into these stocks, thereby increasing the dividends you receive.
Additionally, you have the option of reinvesting the dividends you received to enjoy even more dividends, a process known as compounding.
Compounding takes years to show its power but when this process is done right and repeated regularly, you will end up with a nice pot of gold for your retirement and a much larger stream of dividend income.
Unfortunately for me as a child, saga seeds placed in a bottle do not generate more saga seeds.I still needed to expend time and effort to pick up some more.
But the beauty of dividends is that you can just reinvest them without much effort and they will continue to generate more dividends.
This virtuous cycle is what makes investing so rewarding and also why dividend stocks are such an attractive option for investors.
Imagine this: you reinvest them once, and they start working tirelessly to generate even more dividends for you.
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Disclosure: Royston Yang owns shares of DBS Group, iFAST Corporation, Frasers Logistics & Commercial Trust, Boustead Singapore Limited and Suntec REIT.
