3 Reasons Why Your Portfolio Need Dividends In Singapore

Why does your portfolio need dividends in Singapore, you ask?

Because, the stock market in this country is looking good this 2017.

According to a NASDAQ.com article, Singapore is among the Asian stock markets that are in “positive territory” at the beginning of this year.

The article gave this report after the US Federal Reserve Chair Janet Yellen gave confirmation that they can raise the interest rate gradually. This statement was given after Yellen delivered the “semi-annual monetary policy testimony before the Senate Banking Committee.”

But what exactly does this have to do with the stock market in Singapore?

The Singapore market is reliant on the global market. Since the US holds a significant influence in the global market, anything that happens to that country can affect our local stock market.

There are shares in Singapore that pay dividends. It is considered as an effective and easy way to grow your personal net worth. If you invest in high-quality dividend stocks, it might end up outperforming the wider stocks market over a long period.

Although considered to be a small market, Singapore is set to have a good year when it comes to dividend stocks. In fact, SGX.com reports that there are “25 SGX-listed companies in the FTSE All-World High Dividend Yield Index.” When a company is listed in this index, it means they have a higher than average dividend yield.

If that is not enough reason to invest in dividends in Singapore, then what other reason do you need?

3 reasons to invest in dividends in Singapore

There are three main reasons why dividend stocks in Singapore are such a huge deal for your portfolio.

1. Dividends give the best returns.

Thanks to the compounding of interest, you can set your personal wealth for a huge growth through dividends. It is not the slow and steady growth that is similar to investing in bonds.

If you learn how to identify the high-quality stocks, you could successfully double your investment in a couple of years. You need to understand how compound interest works to appreciate how your money will grow.

Let us assume that you invest S$10,000. The dividend yield in Singapore is currently playing around 4%. That means by the end of the year, you would have S$10,400. If you reinvest the dividend you received, you already have $10,400 earning 4%. As long as you keep on reinvesting the dividend and assuming that the 4% holds up, your investment would have grown into S$12,165 by year 5. That is a growth of 21% in 5 years!

2. Dividends provide a passive income that is stable.

Here’s the thing – investing in dividend stocks will always pay you. It does not matter if the market goes up or down. As long as the company you have invested in is growing and generating profit, then you can rely on it for a steady passive income. Of course, the yield will fluctuate now and then. But the bottom line is, as long as you hold on to the stock, you can receive dividends and it will come at the appointed time.

While this will make you feel secure, there is an important consideration to be made here. You need to identify the high yielding dividends in Singapore. Not only that, you may want to look into the companies with a low payout ratio. This means when the company earns a profit, they do not convert all the income into dividends. A portion of the income will go to the company itself.

When a downturn happens, the company does not have to cut back on dividend yield immediately to recoup losses. A company with a high payout ratio is an indication that they put a significant part of the income in dividends. A downturn will immediately affect dividend yields.

3. Dividends help you identify the best companies.

We mentioned earlier how you need to invest in high yielding dividend companies in Singapore. This is how you can guarantee the best investment. That being said, investing in dividends will get you into the habit of identifying the best companies in Singapore.

If a company can afford to pay you are growing yield and does so consistently, that is an indication of an improving revenue for the business. When they have a higher cash flow, it gives the company more opportunity to grow.

How to be wise when investing in dividends in Singapore

According to an article published in Barrons.com, dividends in Singapore will grow – it will sluggish, but it will improve in 2017.

In fact, the article mentioned how Singapore is more resilient because of its exposure to the global market – specifically the growing economies of the South-East Asian markets. Thanks to the weight given to REIT investments in Singapore, our local market is poised to provide the highest yields in the region.

Of course, experts would caution investors to avoid focusing too much on high-yielding shares without looking at various factors. There are a couple of things that you need to consider – two of which we will mention here.

• Payout ratio. As mentioned, the payout ratio is also very important because it shows you how safe your investment will be in the event of an economic downturn.
• Steady growth. You want to invest in a company that has a history of growth. Do not be blinded by an immediate increase in revenues. Some companies can quickly die down despite a strong start. It is better to trust in a company that shows a slow yet consistent growth. If you are a long-term investor, this is an important factor to consider.

The truth is, it can be tough to decide where to place your money. It takes time and adequate experience to really understand how this market works. You need to set specific investment goals so you can be wise about the choices that you will make in your finances.

One thing is for sure – if you have to diversify your portfolio, there is definitely enough room for dividends in Singapore.