It’s no secret that the prices of goods and services are creeping up.
As Christmas approaches, you may have heard a colleague or relative or two grumble about higher prices for everything from groceries to flight tickets.
The pain is real but we do not need to suffer in silence.
There’s a salve for your pain that comes in the form of dividend-paying stocks.
You can view such stocks as “Panadol” which helps to ease the headache of higher prices.
Dividends can serve two useful purposes.
They provide you with a stream of additional income so that you can continue to spend like you used to, even though prices have risen all around.
The even better news is that most stocks that pay out a dividend also help you to beat inflation, allowing you to more than preserve the value of your hard-earned dollars.
From a trickle to a gush
Even if you have just a small sum of money, you can already kick-start your passive income journey.
For instance, S$1,000 invested in a steady, dividend-paying stock such as Mapletree Logistics Trust (SGX: M44U) can earn you S$56 a year based on a forward distribution yield of 5.6%.
Or park another S$1,000 in a dependable dividend payer such as CapitaLand China Trust (SGX: AU8U) and you’ll be S$73 richer by the end of a year as the China-based REIT’s units yield 7.3%.
And as you build up your savings and deploy more money into a wider variety of dividend stocks, you also start to grow your dividend flow from a mere trickle to a satisfying gush.
If you intend to offset some of your expenses with, say, an additional S$1,000 a month in passive income, then you’d have to invest a sizable sum that can earn you these dividends.
Using the example of Mapletree Logistics Trust, you will need to fork out close to S$215,000 to enjoy a dividend stream of S$12,000 a year.
However, it’s unwise to park all your money in just one stock.
The key is to diversify and accumulate stocks of more dividend-paying stocks such as Singapore Exchange Limited (SGX: S68), Sheng Siong Group Ltd (SGX: OV8) and DBS Group (SGX: D05).
As you grow your portfolio’s size, your passive income stream will also rise in tandem, thereby helping you to offset the effects of higher prices.
If you can allocate more money over time into your portfolio, you don’t need to stop at just S$1,000 a month.
You can end up generating S$2,000, S$3,000 or even S$5,000 a month if you are patient and diligent in deploying your savings and bonuses into your dividend portfolio.
Leaving inflation in the dust
What level of dividends will be enough for you to beat inflation?
Well, let’s take a look at the rate of inflation growth.
Singapore’s core inflation came in at 5.1% for October, a slight dip from the 5.3% recorded in September.
Core inflation for 2023 is expected to come between 3.5% to 4.5%.
This may sound like a high hurdle.
For a better perspective, let’s stretch the timeline further to 30 years.
In the last three decades, Singapore’s inflation has averaged around 2.5%.
So what we are witnessing now is likely an anomaly that will not persist in the long run.
Dividend stocks, however, can easily leave inflation in the dust.
The REITs mentioned above sport distribution yields of 5.6% and 7.3%, and even shares of Singapore’s largest bank DBS Group offers a trailing dividend yield of 4.2%.
Here’s the thing.
Well-managed companies and REITs have the potential to grow their dividends, meaning that your yield on cost is set to rise even if you do not increase your shareholdings.
Not only will you enjoy a higher yield over time, but the amount of passive income you receive will also rise in tandem.
A portfolio that pays you for life
Over at The Smart Dividend Portfolio, we have carefully selected 25 dividend-paying stocks that we believe can pay you for life.
We have confidence that these businesses are well-run and can not only triumph against inflation but also generate a consistent stream of income over the long run.
Remember that having a diversified portfolio is important as it is highly risky to park all your funds in just one stock, no matter how strong or stable it may appear to be.
So don’t hesitate.
Join us now as we chart our plans for 2023 and deploy more money into these dependable, dividend-paying stocks.
In our special FREE report, Top 9 Dividend Stocks for 2022 – and 3 Tactical Shifts to Maximise Your Profits, we’re revealing 3 special categories of stocks that are poised to deliver maximum growth in 2022 and beyond.
Our safe-harbour stocks are a set of blue-chip companies that have been able to hold their own and deliver steady dividends. Growth accelerators stocks are enterprising businesses poised to continue their growth. And finally, the pandemic surprises are the unexpected winners of the pandemic.
Download for free to find out which are our safe-harbour stocks, growth accelerators, and pandemic winners! CLICK HERE to find out now!
Disclaimer: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.