It isn’t that hard to enjoy a steady monthly income funded by dividends in retirement.
Even if the monthly amount is just S$1,000, this figure can help you meet some living expenses and reduce drawing down on your savings.
To achieve this, one has to build a portfolio that pays sustainable dividends over time.
Without further ado, let’s map a realistic path to achieve monthly dividends of S$1,000 before age 60.
What S$1,000 a Month in Dividends Really Means
Let’s first break down what a S$1,000 a month in dividends really entails.
S$1,000 a month translates to S$12,000 a year.
There are two ways to achieve this dividend figure: you can either have a bigger portfolio at a lower total portfolio yield, or you can have a smaller portfolio, but make up for it with a higher portfolio yield.
Here is a simple illustration:
If you have a S$300,000 portfolio, your overall portfolio yield has to be 4% in order to earn S$12,000 in annual dividends.
For a smaller portfolio, say S$240,000, your overall portfolio yield has to be higher at 5% in order to enjoy the same annual dividend of S$12,000.
Of course, if the yield is even higher, for example at 8%, you will only require an even smaller portfolio.
However, the point here is to establish some realistic assumptions: it’s easier and safer to obtain a portfolio yield of 4% to 5% than 8%.
Higher yields don’t usually mean quality companies.
Step 1: Start With the Right Time Horizon
Starting early matters more than investing larger sums at a later time.
This is due to the eighth wonder of the world: compounding.
Compounding works best when you have time on your side.
Let’s say, you start with a portfolio of S$10,000 that yields 4% when you’re 25.
By reinvesting every cent, you aren’t just adding S$400 a year; you are increasing your stake so that the following year’s 4% is calculated on a larger base.
By the time you reach age 60, that initial S$10,000 will have grown to approximately S$39,460 without you ever adding another dollar of your own money.
If you were to wait until age 35 to invest that same S$10,000 at the same 4% yield, your portfolio at age 60 would only reach roughly S$26,658.
By starting at 25 instead of 35, you finish with nearly S$13,000 more.
This is without accounting for the Compound Annual Growth Rate (CAGR), which acts as a force multiplier, ensuring your underlying investment and its payouts grow in tandem, exponentially accelerating the wealth-building process over time
Step 2: Focus on Dividend Sustainability, Not Just Yield
You want companies that can grow their dividends consistently over time.
But, what makes a dividend reliable?
Typically, a business that can generate cash flow consistently while maintaining decent payout ratios will pay reliable dividends.
An example of this would be Sheng Siong (SGX: OV8).
By maintaining a debt-free balance sheet and a payout ratio consistently below 100%, they ensure dividends are funded by actual profits rather than credit.
Prioritizing companies with robust balance sheets and low debt levels serves as a critical safeguard, allowing you to distinguish genuine value from “dividend traps” that use unsustainable payouts to mask deteriorating fundamentals.
Step 3: Build the Core of the Portfolio
The core of your portfolio would include income pillars such as established dividend-paying stocks with proven business models.
In Singapore, the three major banks – DBS Group (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39), and United Overseas Bank (SGX: U11) – are classic examples, often forming the bedrock of local income portfolios due to their strong capital ratios and historical commitment to returning profits to shareholders.
REITs with resilient occupancies and strong balance sheets form the other income pillar.
A good example would be CapitaLand Integrated Commercial Trust (SGX: C38U), which boasts a massive S$27.4 billion portfolio of prime Singaporean assets to maintain a dominant 96.9% occupancy rate and offers a resilient 4.7% distribution yield.
To build a truly resilient portfolio, you should diversify across various sectors and income streams to ensure that your financial stability never depends on the performance of a single company or sector.
Step 4: Reinvest Dividends Aggressively (At First)
Reinvesting dividends is critical to reaching the S$12,000 annual goal.
By putting payouts back into the market early, you accelerate the compounding effect as your growing share count generates even larger future payments.
When you combine a larger portfolio with companies that steadily raise their payouts, the snowball effect takes over.
As years go by, this momentum builds your dividend income exponentially.
Hence, it makes sense to reinvest your dividend income instead of withdrawing early.
Only once you reach retirement should you shift from reinvesting dividends to collecting them as passive income.
Step 5: Make Consistent Contributions
In your earning years, your focus should be on making regular contributions.
Allocate monthly contributions, with a realistic figure in mind.
For instance, a good starting point could be setting aside 10% of your take-home pay for investment purposes.
On a $2500 salary, this means investing $250 every month.
While $250 may seem modest at first, the goal is to build the habit and ensure consistency.
As your income grows over time, your investment contributions should follow suit.
Common Mistakes That Delay Dividend Goals
As you build your portfolio, avoid the common trap of chasing unsustainable high yields.
An excessive dividend yield is not an automatic “buy”; often, these payouts are not covered by the company’s actual cash flow.
Selling quality dividend companies too early is another mistake, as doing so means missing out on decades of future compounding and income growth.
Instead, stay disciplined by monitoring the balance sheets and cash flow of your holdings, while ensuring you constantly reinvest your dividends.
Stress-Testing the Plan
Finally, ensure your portfolio can withstand market turmoil.
Examine the dividend history of your companies: have they been able to pay dividends during times of market stress?
Historically, dividend incomes hold up better than stock prices during market gyrations.
To stay disciplined, build a cash buffer of at least six months’ living expenses.
This safety net allows you to meet any short term unforeseen cash needs without being forced to sell your shares at depressed prices.
By maintaining this flexibility, you ensure your dividend stream remains uninterrupted even when the market is volatile.
Get Smart: Start making your dream come true
To summarise, building a S$1,000 monthly dividend portfolio is something anyone can achieve.
Act with discipline and patience, and focus on buying quality companies.
It helps when you start early and let compounding work for you.
We’ve found 5 SGX-listed dividend stocks with strong track records in turbulent markets. If you want consistency in an uncertain world, start here.
Follow us on Facebook, Instagram and Telegram for the latest investing news and analyses!
Disclosure: Wilson.H does not own shares in any of the companies mentioned.
