Dividends are often painted as the easiest path to a comfortable retirement. It is income that arrives even when you no longer work.
It’s a reassuring idea: your money keeps working long after you’ve stopped.
But as comforting as that image is, it leaves out the part that really determines whether dividend retirement will work for you. The truth is that living off dividends is not just about collecting payouts. It is about building a portfolio strong enough to sustain those payouts for decades.
And that’s the part many investors overlook.
That’s the surface story.
But there’s a deeper lesson worth keeping in mind if you’re serious about funding your golden years with dividends.
Why dividends matter
Think of dividends as a second paycheck that doesn’t depend on you showing up to work.
Instead, it depends on the company’s ability (and willingness) to share profits.
For retirees, that matters because you don’t want to sell your stocks just to cover monthly expenses.
Dividends can give you a steady flow of cash without having to dip into your savings.
The real benefit is durability. Dividends allow your capital base to remain intact, while the income takes care of your living needs.
A real-world example
Take Boustead Singapore Limited (SGX: F9D). The conglomerate operates across energy, real estate, geospatial tech, and healthcare.
On the surface, Boustead’s revenue dropped sharply in its latest fiscal year, down 31% year on year.
That sounds worrying.
But if you look closer, the company managed its costs well, so profits actually went up.
The company’s core net profit rose 8% to S$68.6 million, and free cash flow stayed healthy at S$68 million.
Which is why, even with lower revenue, Boustead raised its dividend to S$0.075 per share, up from S$0.055 last year.
That’s money landing in shareholders’ pockets, even when the top line looked weaker.
As a dividend investor, it pays to watch cash flow and profit quality as closely as headline revenue.
Not all dividends are all created equal
Here’s where many investors trip up.
Just because a company pays a dividend doesn’t mean it’s safe or sustainable.
Sometimes management pays out to keep up appearances, sometimes they cut back when business slows, and sometimes, like Boustead, they can raise dividends because the fundamentals support it.
To judge the quality of dividends, investors should look at three things:
- Cash Flow – Are operating cash flows consistently positive and sufficient to cover dividends?
- Payout Ratio – How much of earnings are paid out? A sustainable payout ratio is usually below 70%.
- Balance Sheet Strength – Companies with strong balance sheets and manageable debt levels can sustain payouts even in downturns.
What yields really mean
A big dividend yield may look attractive at first glance, but the real test is whether it can be maintained.
Take Singapore’s banks as classic examples.
DBS Group (SGX: D05) currently offers a yield of around 5.3% while UOB (SGX: U11) offers an even higher yield of 6.0%.
These yields may not be eye-popping compared with some REITs or high-risk stocks, but they come from banks with strong earnings, disciplined capital management, and long track records of rewarding shareholders.
In contrast, a smaller company offering a 10% yield might actually be waving a red flag. If the company’s profits drop or debt piles up, that dividend could be cut overnight.
History has shown us how dramatically those outcomes can diverge.
During the COVID-19 pandemic, Singapore Airlines (SGX: C6L) suspended its dividends altogether when cash flow dried up. Any investor relying on SIA as a retirement income source would have seen their “paycheck” vanish overnight.
Meanwhile, DBS and UOB not only maintained their dividends (within MAS’ temporary restrictions) but went on to raise them in subsequent years as the dividends were supported by resilient profits and strong capital buffers.
This contrast shows why dividend durability matters more than headline yield.
Retirement math: How dividends fit in
Let’s bring it back to retirement.
Suppose you want S$40,000 a year in dividend income during retirement. If your portfolio yields 4% on average, you’d need about S$1 million invested.
At 5% yield, that drops to around S$800,000.
The goal is not to obsess over a single number, but to understand how yield, portfolio size and income work together.
A higher yield can help, but only if it is sustainable.
A cut in dividends could easily throw your entire retirement plan off course.
The real hidden takeaway
If you want to retire on dividends, the key isn’t to chase the biggest yield or the flashiest promise.
The key is to focus on durability.
Durability is about understanding whether a business can keep generating cash year after year, through both calm periods and difficult ones. It is about management that stays disciplined with costs and capital allocation, and about companies that can continue paying dividends even when conditions turn rough.
Dividends are only as strong as the business behind them. Some companies use dividends to cover up deeper weaknesses, while others pay them as a sign of true financial strength.
Our job as investors is to know which one you are looking at.
Building a retirement income stream
Done right, dividend investing can build a second paycheck that grows with you into retirement.
That doesn’t mean you’ll never face ups and downs.
If you choose businesses with staying power, the dividend cheques can keep coming, through good years and bad.
So when you see headlines about “high yields” or “special payouts,” don’t just think about how much cash you’d get today.
Think about whether the company can keep doing it tomorrow, next year, and ten years down the line.
That’s the real path to retiring with dividends: not chasing what’s shiny, but understanding what’s durable.
If you’d like to dig deeper, we’ve put together a special report called Retire with Dividends.
Inside, you’ll see how to spot the kinds of businesses that can keep paying you year after year, so your retirement income doesn’t run dry.
If you want to retire with a constant stream of dividends, these 5 stocks might be all you need. We’ve found 5 SG stocks that have kept paying (and growing) through inflation, rate hikes, and recessions. See what they are with our latest free report for SGX dividend investors. Click here to get instant access.
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Disclosure: Joanna Sng of The Smart Investor owns shares of Boustead, DBS, and UOB.
