Chinese New Year is almost here, and this year will be much grander and more festive than the previous two years with social restrictions no longer present.
Along with the hustle and bustle is the usual preparation of red packets (ang pow) filled with money to hand out to family, loved ones, and friends.
You will probably remember receiving such red packets as a child and feeling pleased with collecting your “income” for the year.
Of course, the feeling is not quite the same as we grow up and start working as our salary then becomes our main source of income.
But there’s an effective method to feel the same joy and happiness, and that is to receive dividends from the stocks that you own.
As you deploy your money into the stock market, we should emphasize that the receipt of dividends can provide you with the same merriment that you experienced during your childhood.
Bigger and bigger ang pows
The beauty of dividends is that they are akin to receiving “free” money just like the receipt of ang pow during the Lunar New Year.
By parking your money in well-managed companies that generate significant amounts of free cash flow, you can enjoy a passive income stream that helps to supplement your earned income.
When I was younger, I used to receive just a dollar in an ang pow.
Over the next three decades, the standard minimum amount has now increased to around four dollars.
This rise in the minimum amount is a stark reminder of the effects of inflation, which is currently hovering at near 14-year highs in Singapore.
The good news is that your dividend “ang pows” can also grow steadily over time if the underlying businesses perform well.
As companies churn out increasing profits and cash flow, they will also increase the dividends they pay out.
Hence, owning quality dividend-paying stocks means you get to enjoy fatter ang pows as the years go by.
Income stocks for your portfolio
Remember that dividends represent more than just cash in your pocket.
Volatile stock markets can cause share prices to fluctuate sharply, but the receipt of a dividend gives you a real, tangible return on your investment.
There’s a bonus, too.
Should share prices collapse when there is a deluge of bad news, you can deploy your dividends to scoop up shares at bargain-basement valuations.
Dividends are also useful in sustaining income-seeking investors through downturns as you wait for the eventual recovery.
Some reliable blue-chip dividend stocks include Singapore’s largest bank, DBS Group (SGX: D05), and bourse operator Singapore Exchange Limited (SGX: S68), or SGX.
DBS has the practice of paying out quarterly dividends and has also raised its recent fiscal 2022’s third quarter dividend from S$0.33 to S$0.36.
As for SGX, the group enjoys a natural monopoly and recently raised its annual dividend from S$0.305 in fiscal 2020 (FY2020) to S$0.32 in FY2021.
REITs also count as good sources of steady dividends as they are required to pay out 90% or more of their earnings to qualify for tax benefits.
Parkway Life REIT (SGX: C2PU) has raised its core distribution every single year since 2008, with its distribution per unit (DPU) rising from S$0.0683 that year to S$0.1408 in 2021.
Mapletree Industrial Trust (SGX: ME8U) also boasts an unbroken track record of DPU increases since FY2012, with DPU steadily climbing from S$0.0841 to S$0.138 in FY2022.
Stocks that pay dividends in February
Meanwhile, if you want to relive your childhood joy of receiving dividends during the Chinese New Year, you can choose to own companies that pay dividends in February.
Chinese New Year falls in February for the vast majority of the time, although this year is particularly early on 22 January.
One of the REITs I own, Suntec REIT (SGX: T82U), pays out a dividend by the end of next month.
SGX and Micro-Mechanics (Holdings) Ltd (SGX: 5DD) also pay out their dividends in February as they sport 30 June fiscal year-ends.
Get Smart: Constructing a resilient investment portfolio
So why wait?
You can begin to construct and personalise your investment portfolio to include both growth and dividend-paying stocks.
A plus point is that dividend stocks usually imply sturdier businesses as they have the cash flow to pay out consistent dividends.
With a possible recession looming, it’s good to include robust businesses within your portfolio.
Dividend-paying stocks make a great addition to any portfolio and will help to make it more resilient should an economic storm arrive.
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!
Disclaimer: Royston Yang owns shares of DBS Group, Suntec REIT, Mapletree Industrial Trust, Micro-Mechanics (Holdings) Ltd and Singapore Exchange Limited.