Late last week, a headline in the business section of the Straits Times caught my eye: “DBS Global Income Note raises over S$1 billion in 3 months”. Its January launch had seen particularly strong interest from the bank’s private banking clients. Clearly, the concept of income still has appeal among all investors.
The note was part of the DBS Global Income Portfolio – consisting of 100 bonds across geographies and sectors – yet the one point that really stood out for me were the limitations for investors. Not only do you have to be an accredited investor but you also have to invest a minimum of US$50,000. So, not exactly accessible for the average investor then…
Regular income wins the day
More broadly, the story also highlighted how “income investing” as an investment style has really taken off since the global financial crisis. Furthermore, it doesn’t really look set to ever fall out of fashion as, say, “value investing” has. The proliferation of income funds offered by fund houses in the financial services industry (think BlackRock, Fidelity, JPMorgan etc.) is testament to the enduring strength of this trend.
There are a couple of reasons for this. First off, dividends offer an effective hedge for volatility in markets. Even during periods where stock prices are stagnant, or perhaps even falling, investors in solid stocks which pay out regular dividends can effectively be “paid to wait” for an upturn in markets.
Additionally, who doesn’t like regular income streams? Here in Singapore, we’re a seeing an increasing trend of companies paying out dividends on a quarterly basis, rather than twice yearly. Leading local bank DBS Group Holdings (SGX: D05) is a perfect recent example. And these regular income flows relate directly to the second reason for the popularity of income; an ageing population.
Dividends offer stability into old age
According to the World Health Organisation (WHO), the proportion of the world’s population that is over 60 years old will nearly double between 2015 and 2050 – from 12% to 22%. What does that mean for dividend investing? Well, older people generally appreciate stable income flows in their investments given the higher recurring costs associated with old age and crucially, retirement.
Loss of income upon retirement, rising healthcare costs and insurance premiums are the real kickers. Locally, for Singaporeans, one of the best things about dividends is the zero rate income tax on those paid out to individuals. This provides a regular and, most crucially predictable, income stream. It’s no surprise that REITs in Singapore have been wildly popular (among both retail investors and institutions alike) since the first listing in 2002.
For anyone, income investing provides a three-pronged strategy for dealing with retirement; potential capital appreciation of shares, a regular income stream and a growing dividend. Perhaps the last point is one of the most important given how inflation eats away substantially at cash savings over the long term.
Invest for income
The key takeaway for anyone who wants to invest? I would say it’s to invest with dividends/income in mind. Saving and investing for retirement can never start too early. What’s more, within Asia consistently rising dividends, along with the appeal of the local market (Singapore is one of the highest-yielding countries in the region), mean that income investing is a style that will still be in vogue when 2050 rolls around.
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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 Tim Phillips doesn't own shares in any of the companies mentioned.