When I first started investing, I was more focused on earning money through capital appreciation gains in stock prices and often overlooked the impact of dividends.
However, I soon realised that income investing in Singapore could be just as rewarding as looking for stocks that can appreciate in value. In this article, I will highlight why I believe investing in income stocks in Singapore should be a part of every Singaporean’s portfolio.
Unlike countries such as the United States, Singaporeans are not taxed on their dividend income earned through stock investments. This setup is a huge advantage that Singaporeans have over other investors around the world. With every dividend cent going straight into our pockets, our money can compound faster over time.
Dividend reinvestment schemes
Companies can choose to reinvest their free cash flow into its business, or to pay out its cash as a dividend to shareholders. Therefore, money that is paid out as dividends cannot be used to grow the existing business.
However, that does not mean your dividends cannot be reinvested into the existing business. Investors who receive their dividends can reinvest their dividends into the company’s shares. Several companies and REITs in Singapore offer dividend reinvestment schemes that enable the easy reinvestment of dividends into its shares or units. On one side, investors get to increase their shareholdings. On the other end, the scheme allows companies to keep more funds into their balance sheet, which they can use in the future.
Singapore stocks offer comparatively good yield as compared to other investment assets or savings plans. For instance, the SPDR STI ETF (SGX: ES3) currently sports an attractive yield of 3.6%. Singapore-listed REITs also offer investors a high, and most of the time, a consistent yield. The 40 plus REITs and stapled trusts in Singapore now boast a distribution yield of between 4.8% and 10.5%.
Stocks and REITs in Singapore provide a decent yield, and more. There are some counters in the stock market that have managed to increase its dividend or distribution paid out each year. Over the past five years, four component stocks in the Straits Times Index (SGX: ^STI) managed to increase their yield each year. Outside of the index, there are other REITs and stocks that have done the same, providing shareholders with a higher income each year.
The Foolish bottom line
Investing for dividends in Singapore can be financially rewarding.
Besides the consistent cash flow from the investments, Singaporeans can also enjoy capital appreciation and growing dividends if they choose the right counters to invest in. For a more comprehensive guide on income investing in Singapore, you can turn to Sudhan’s guide to income investing in Singapore that can be found here.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't owns shares in any companies mentioned.