Dividend Investing in Singapore: Complete [2025] Guide

Dividend Investing in Singapore: Your Complete Guide

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Dividend Investing Singapore

Dividend investing might seem easy to generate passive income, but there’s more to it than meets the eye.

Having invested in dividend-paying stocks and REITs, I’ve seen the highs and lows – like how your portfolio can offer steady cash flow without the hassle of paying taxes in Singapore.

But don’t be fooled. Not all dividend stocks are created equal!

In this post, you’ll learn:

  • What dividend investing is and how it works
  • Key benefits and potential risks involved
  • How to start building a dividend portfolio

 

Curious about growing your wealth through dividends?

Let’s dive in!

What is dividend investing?

Dividend investing is a strategy for investing in companies or Real Estate Investment Trusts (REITs) that regularly pay dividends.

Unlike growth stocks, where you’re banking on future price increases, dividend stocks offer a steady income stream, often every quarter.

In Singapore, dividend investing is particularly attractive because they aren’t taxed.

This makes dividend-paying stocks an excellent option if you’re looking for passive income without worrying about additional tax obligations.

But don’t get too excited just yet.

Not all companies pay dividends, and even among those that do, the amounts can vary significantly.

What’s the difference between dividend investing and income investing?

Dividend investing and income investing both focus on generating regular cash flow for investors, but they differ in terms of investment strategies and asset selection.

Dividend Investing specifically targets stocks of companies that pay regular dividends to shareholders.

Investors in this strategy often seek stable, mature companies with a history of consistent dividend payments.

The goal is to benefit from both dividend income and potential capital appreciation as the company’s stock value grows.

Income Investing is a broader approach that includes a variety of income-generating assets, not just dividend stocks.

This can involve bonds, REITs (Real Estate Investment Trusts), preferred shares, and other instruments like high-yield savings or money market funds.

Income investors diversify across different asset classes to secure a steady income stream and reduce reliance on stock market performance.

Benefits of dividend investing

Generates passive income

You invest in dividend-paying stocks or REITs, and in return, you receive regular payouts – usually quarterly – without lifting a finger.

This is particularly useful if you’re looking to supplement your salary or even build a retirement fund.

In Singapore, where dividends are tax-free, it becomes an even more attractive option.

You get to keep every dollar of your dividend income, making it a tax-efficient way to earn on your investments.

Less volatility and lower risk

Dividend-paying stocks tend to be less volatile compared to their growth counterparts.

Companies that can afford to pay dividends are often established, with steady cash flows and proven business models.

This means they’re typically less affected by the ups and downs of the stock market.

In uncertain times, having dividend stocks in your portfolio can act as a cushion.

Even if the stock price drops, you still receive your dividend payouts, providing some financial stability.

Moreover, during market downturns, dividend-paying stocks often outperform growth stocks.

You don’t have to pay dividend tax in Singapore

Here’s one of the best things about dividend investing in Singapore – you don’t have to pay any tax on your dividends.

Dividends from companies listed on the Singapore Exchange (SGX) are tax-free.

This means every dollar you receive in dividends goes straight into your pocket without having to share it with the taxman.

This makes dividend investing an incredibly tax-efficient way to build passive income, especially compared to other types of investments like bonds or savings accounts that might come with tax implications.

If you’re investing for the long term, this tax benefit can make a significant difference in your overall returns, allowing you to compound your earnings faster.

Dividends grow together with the company’s profits

When a company performs well and increases its earnings, it may raise its dividend payments to reward shareholders.

This means that your income from dividends isn’t static – it has the potential to grow over time, providing you with a rising stream of income.

This is particularly true for companies with a strong track record of dividend growth, such as some blue-chip stocks or Singapore REITs.

What can you invest in to get dividends?

Dividend-paying stocks

Dividend-paying stocks are shares in companies that regularly distribute a portion of their profits to shareholders as dividends.

These are typically large, established companies with strong financial performance, making them reliable passive income sources.

When you invest in dividend stocks, you’re not only benefiting from the regular payments but also any potential growth in the stock’s price.

Over time, as the company grows and generates more profit, it might increase its dividend payouts, giving you an even higher return on your initial investment.

Dividend unit trusts (Mutual funds)

Dividend unit trusts, or mutual funds, are another great way to receive dividends.

These funds pool together money from various investors to buy a diversified portfolio of dividend-paying stocks.

The advantage here is that you don’t have to pick individual stocks yourself.

Instead, the fund is managed by professionals who select dividend-yielding stocks on your behalf.

Fund managers will remove, add, or adjust stocks based on what they think will generate stable dividends for you.

You get both stability and diversification, lowering the overall risks you’re taking.

Some popular unit trusts even allow you to reinvest your dividends automatically, compounding your returns.

Dividend ETFs

Dividend-focused exchange-traded funds (ETFs) are an excellent choice if you want a simple, diversified way to receive regular dividend income.

Unlike individual stocks, where you rely on the performance of a single company, dividend ETFs pool together multiple dividend-paying stocks into one fund.

This means you benefit from receiving dividends from a wide range of companies without having to manage multiple stock investments yourself.

In Singapore, ETFs such as the Nikko AM Singapore Dividend ETF or the Lion-Phillip S-REIT ETF are popular options.

These ETFs track indexes that are designed to focus on companies or REITs with a strong dividend-paying history.

They give you access to a broad portfolio of dividend stocks across different sectors, spreading your risk and increasing your chances of steady payouts.

The best part?

Dividend ETFs often have lower fees compared to actively managed funds, making them a cost-effective way to invest.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are another fantastic option for dividend-seeking investors, especially in Singapore.

REITs own and manage income-producing properties such as shopping malls, office buildings, and logistics centres.

What makes them attractive is that they’re legally required to pay out at least 90% of their taxable income to shareholders as dividends, ensuring regular income.

Since the real estate market in Singapore is pretty stable compared to other markets, REITs often provide more reliable payouts than other sectors.

Additionally, with their income being passed directly to shareholders, they’re an ideal choice if you want to build a steady stream of passive income.

Key metrics to look at when dividend investing

Payout ratio

The payout ratio tells you what percentage of a company’s earnings are paid as dividends.

It’s calculated by dividing the dividends paid by the company’s net income.

Ideally, you want to invest in companies with a sustainable payout ratio – something between 30% and 50% is generally considered healthy.

A payout ratio that’s too high (say, above 80%) could be a red flag.

It might mean the company is paying out too much of its profits and leaving little for growth or future investments.

However, sectors like REITs can have higher payout ratios due to regulatory requirements that force them to distribute most of their earnings as dividends.

Dividend yield

It tells you how much dividend income you’re getting for every dollar you invest.

It’s calculated by dividing the annual dividend per share by the stock’s current price.

For example, if a company pays a $2 dividend per share and the stock costs $40, the yield would be 5%.

While a higher dividend yield may seem attractive, don’t rely solely on this metric.

Sometimes, a high yield can signal trouble – perhaps the stock price has dropped significantly, artificially inflating the yield.

Cash flow

Cash flow is crucial in determining a company’s ability to continue paying dividends.

While earnings are often used to calculate payout ratios, cash flow gives a clearer picture of a company’s liquidity.

A company can show high profits on paper but might struggle to generate enough cash to sustain its dividend payments.

Free cash flow (the cash left after covering operating expenses and capital investments) is particularly important.

If a company’s free cash flow is strong, it’s in a better position to maintain or increase its dividend payments, even during tough times.

Dividend growth

Dividend growth refers to how much the company has increased its dividend payouts over time.

Companies with a long track record of steadily growing dividends are generally more reliable.

Look at companies that consistently increase their dividends over several years – a sign of solid earnings growth and sound management.

It’s worth checking out the company’s 5-year or 10-year dividend growth rate to see how consistent the increases have been.

Debt-to-equity ratio

A company with too much debt can be risky for dividend investors.

The debt-to-equity ratio tells you how much debt a company uses to finance its operations relative to shareholders’ equity.

A high ratio suggests that a company relies more on borrowing, which can jeopardise future dividend payments, especially if interest rates rise or the company faces financial stress.

A lower ratio indicates financial health and more flexibility to maintain dividends during economic downturns.

Dividend payout history

Companies that have a long track record of paying and even increasing dividends during both good and bad economic times are usually more dependable.

This consistency shows that the company prioritises returning value to shareholders.

Earnings per share (EPS) growth

While not directly related to dividends, EPS growth shows how much the company’s profits are increasing.

A company with growing EPS is more likely to sustain and increase its dividends over time.

Conversely, declining earnings may put pressure on dividend payments.

Companies that consistently grow their EPS tend to have more resources to pay out dividends while still reinvesting in the business for future growth.

How do I estimate how much money I’ll get from my dividends?

Start by calculating your target amount.

For example, if you aim for $3,000 per month, that totals $36,000 annually.

Next, assume a prudent dividend yield of about 4%, which is typical for many stable dividend portfolios.

Using the formula for required investment:

Required Investment = Annual Dividend Income / Dividend Yield

You can calculate that to achieve your $36,000 goal, you’ll need to invest approximately $900,000 in a portfolio yielding 4%.

Common pitfalls and risks in dividend investing

Dividend cuts

Companies may reduce or completely halt dividend payments during tough economic times, especially if their profits take a hit.

This is more common in sectors sensitive to economic cycles, such as energy or retail.

For instance, during the COVID-19 pandemic, many companies across the globe – including some Singapore REITs – either reduced or suspended their dividends to preserve cash.

If you’re heavily reliant on these payouts, a cut can significantly disrupt your income.

Over-reliance on dividends

While it’s tempting to focus solely on stocks that offer high yields, this can lead to missed opportunities for growth.

High-dividend stocks are often mature companies with slower growth prospects, meaning they may not offer the same potential for capital appreciation as growth stocks.

For example, while investing in a dividend-paying REIT might provide you with a steady income, you could miss out on the capital gains that a fast-growing tech company might offer.

Striking a balance between dividend stocks and growth stocks is essential to achieving a well-rounded portfolio.

Sustainability

When investing in dividends, it’s crucial to consider the sustainability of a company’s business model.

While high dividend payouts can be attractive, they aren’t sustainable if the company is overleveraging itself or draining its cash reserves to keep up with dividend payments.

In the long run, this can lead to financial instability, forcing the company to cut dividends or, worse, struggle with debt.

A sustainable business model is key to ensuring that a company can continue to generate profits and pay dividends consistently.

Companies that rely on borrowing to maintain their dividends or have high payout ratios are often at risk of reducing dividends during challenging economic periods.

Dividends equal money not reinvested to grow business

While dividends provide you with regular income, they also represent money the company isn’t reinvesting in its business for future growth.

Companies prioritising high dividend payouts may have less capital to expand their operations, develop new products, or improve efficiency.

This can limit their long-term growth potential.

If you’re okay with not getting dividends and would prefer to benefit from the growth of companies, consider growth investing instead.

Dividend investing strategies to mitigate its risks

Building your dividend investment portfolio as part of your overall portfolio

While dividends can provide consistent income, it’s crucial to build a diversified portfolio to lower your exposure to the risks associated with dividend cuts.

Instead of focusing solely on stocks with high yields, consider investing in companies with stable payouts and a track record of increasing dividends over time.

Companies that grow their dividends steadily often have healthier balance sheets and more sustainable business models, which reduce the likelihood of dividend cuts during economic downturns.

In Singapore, dividend-paying stocks and REITs can be tempting due to their attractive yields, but they are not obligated to pay you dividends like bonds are.

This means that during challenging times, companies might halt or reduce dividend payments.

You can also consider investing in bonds.

While bonds don’t pay you dividends, they are more predictable in giving you income through coupon payments – if regular income is what you’re looking for.

Reinvest dividends you don’t need

By reinvesting your dividends, you purchase more shares, which in turn generates more dividends in the future.

This snowball effect can significantly increase the value of your investment over the long run.

There are many ETFs or unit trusts that will automatically reinvest your dividends into additional shares without charging transaction fees.

Over time, reinvesting dividends allows you to compound your returns, which can make a huge difference in building wealth.

Even if the stock price remains stable, the growing number of shares you hold will result in higher dividend payments.

Or just choose a dividend-paying ETF or unit trust

If managing individual dividend stocks seems too complex, a dividend-focused ETF or unit trust can provide a low-effort way to diversify and mitigate risks.

These funds pool together dividend-paying stocks, exposing you to a range of companies or REITs, while spreading your risk.

By investing in a dividend-paying ETF like the Lion-Phillip S-REIT ETF, you gain access to multiple income-generating assets, reducing the impact if one company cuts its dividend.

ETFs and unit trusts are managed by professionals, which means you don’t need to monitor each stock’s performance constantly.

Who is dividend investing for?

Retirees and those nearing retirement

As you near the end of your working years, you might be more focused on preserving capital while generating consistent income to cover your expenses.

Dividend-paying stocks or REITs can provide a steady income stream without selling off assets.

For retirees in Singapore, the fact that dividends are tax-free is another big advantage.

You get to keep every cent of the dividend income, which can make a significant difference in your retirement planning.

Conservative investors seeking stability

If you have a conservative risk tolerance, dividend investing is likely a good fit for you.

Dividend-paying stocks, especially blue-chip companies and REITs, tend to be more stable than growth stocks.

These companies are often well-established, with a proven track record of generating profits and paying regular dividends.

For investors who want to grow their wealth with a relatively lower level of risk, dividend investing offers a balanced approach – providing both income and potential for capital appreciation.

Income-focused investors

For investors primarily looking to generate passive income, such as those who might be semi-retired or seeking additional income streams, dividend investing is a solid option.

Whether you want to supplement your monthly earnings or build a portfolio that could one day replace your salary, dividend stocks offer a dependable way to achieve this.

In Singapore, REITs are particularly attractive for income-focused investors due to their high dividend yields and consistent payouts, making them a popular choice for building a reliable income portfolio.

Young investors with a long-term focus

Although dividend investing might seem more suited to older or conservative investors, it can also work well for younger individuals who want to build long-term wealth.

By starting early, young investors can reinvest their dividends and take full advantage of compound growth.

Even small, regular dividend payments can snowball into substantial wealth when reinvested.

Frequently Asked Questions

Is dividend income taxable in Singapore?

Dividend income is not taxable in Singapore.

For individual investors, dividends paid by companies listed on the Singapore Exchange (SGX) are tax-free.

This means you get to keep the full amount of your dividend payments without worrying about additional taxes.

However, do note that certain foreign-sourced dividends may be subject to taxes, depending on the country they come from.

Conclusion

Dividend investing can be a fantastic way to generate passive income while maintaining a relatively low-risk portfolio.

We’ve covered the basics of dividend investing, its key benefits like generating tax-free income in Singapore, and the metrics you should look at before choosing your investments.

We also explored how to estimate your potential income and strategies to mitigate risks, such as diversifying your portfolio and reinvesting dividends.

If you’re still unsure about how to start or need help selecting the right dividend stocks, don’t worry – you’re not alone!

Feel free to connect with one of our trusted financial advisor partners for free advice.

They can help you tailor a strategy that fits your financial goals and guide you through the process.

References

Picture of Firdaus Syazwani
Firdaus Syazwani
In 1999, Firdaus's mother bought an endowment plan from an insurance agent to gift him $20,000. However, after 20 years of paying premiums, Firdaus discovered that the policy was actually a whole life plan with a sum assured of $20,000, and they didn't receive any money back. This experience inspired Firdaus to create dollarbureau.com, so that others won't face the same problem of being misled or not understanding what they are purchasing – which he sees as a is a huge problem in the industry.

Disclaimer: Each article written obtained its information from reliable sources and should be purely used for informational purposes only. The information provided by Dollar Bureau and its affiliated parties is not meant to be construed as financial advice. Dollar Bureau shall not be held liable for any inaccuracies, mistakes, omissions, and losses incurred should you act upon any information listed on this website. We recommend readers to seek financial planning advice from qualified financial advisors. 

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