A family of four (i.e. parents, a teenager and a pre-teen) requires at least S$6,426 a month for a basic standard of living.
These findings were shared by the National University of Singapore Lee Kuan Yew School of Public Policy (LKYSPP) in a joint study with Nanyang Technological University (NTU).
This report was different from previous ones as it includes expenses for education, work-life balance, and access to healthcare. .
In short, this figure of S$6,426 should be close to what a typical household in Singapore requires to maintain a reasonable standard of living..
Unfortunately, the study also found that close to 30% of working households are not able to meet this level of income.
Here’s where dividend investing can help to close this gap.
Let’s delve into how this method of investing can help you sustain the lifestyle that you desire.
A worrying problem
In addition to the findings for four-member households, the study also highlighted that the basic needs for an elderly person come up to S$1,421 per month.
This figure is problematic.
That’s because the CPF Basic Retirement Sum only pays out S$800 a month, covering just 56% of what’s needed, while the Silver Support Scheme covers another 11% to 21%.
Adding this all up, there is still a gap of around 23% to be filled.
So, not only are one-third of households lacking what’s required for a basic standard of living, but elderly folk are also finding it tough to balance the budget once they retire.
The study did not prescribe any detailed method to help close this gap but suggested a more equitable way of allocating public resources.
Closing the gap
Putting some money in dividend stocks helps to generate a passive stream of income.
By building up this income over time, more households can close this gap.
Let’s take a hypothetical scenario where a household earns S$5,400.
According to the study, it will face a shortfall of around S$1,000 a month.
To plug this gap, an annual dividend of S$12,000 (S$1,000 multiplied by 12) is required.
Assuming a 5% dividend yield on your overall portfolio, a sum of S$240,000 is needed to generate this level of annual dividends.
While this amount is not small, a dual-income household with a good savings habit and which consistently allocates money to dividend stocks can, over time, achieve this.
Some examples of such companies are DBS Group (SGX: D05) and Singapore Exchange Limited (SGX: S68), or SGX.
The former pays out a prospective dividend yield of around 4.4% while SGX’s shares provide a yield of 3.3%.
Don’t forget that strong companies are likely to raise their dividends as their business prospers over time, so a 5% dividend yield is not an unrealistic assumption.
Exploring passive income options
Aside from the blue-chip options mentioned above, you can also consider investing in REITs.
REITs represent bundles of real estate that are packaged together into a security that can be bought or sold on the stock exchange.
Because of the requirement to pay out 90% of their net profit as distributions, REITs, therefore, qualify as reliable income instruments.
Examples of REITs with great track records and good sponsors include Keppel DC REIT (SGX: AJBU), Frasers Logistics & Commercial Trust (SGX: BUOU) and Mapletree Industrial Trust (SGX: ME8U).
These three REITs sport annualised dividend yields of 4.2%, 5.1% and 5.0%, respectively.
Further afoot, some US companies have also chalked up an excellent track record of increasing their dividends.
For instance, consumer goods giant Proctor and Gamble (NYSE: PG) has a 65-year unbroken record of dividend increases, while Kimberly Clark (NYSE: KMB) has increased its dividend payments for 49 consecutive years.
Get Smart: An achievable goal
The LKYSPP study is instructive as it provides a realistic picture of the amount needed for different groups of households to sustain a basic living.
Although some families may fall short of the required amounts, investing in dividend stocks can help to close the gap.
The important thing is to start as soon as possible to enable that pot of money to grow into a sizable amount.
Only then can it churn out a steady dividend stream that supplements your income.
This goal is achievable, but you need the patience and determination to stay the course.
Here are 5 cash-rich companies so healthy, they can pay you dividends for life. The names of these SGX stocks are in our special FREE report. Download it here and start building your dream retirement portfolio today!
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.