How Do You Buy Dividend Stocks?

October 21, 2022

Dividend investing is popular among Singapore investors. There are many reasons for that. One big reason is that Singapore companies do not impose any withholding tax on dividends.

This means that both Singaporeans, and non-Singaporean investors, do not have to pay any taxes on dividends received – making it more attractive to invest in Singapore stocks.

The only exception is non-Singaporean-resident investors buying REITs (where they’re subject to a 10% withholding tax on dividends).

In comparison, if Singaporean investors were to invest in US stocks or Exchange-Traded Funds (ETFs), there’s a huge 30% withholding tax for non-US tax residents.

It should be noted that Singapore has a one-tier corporation tax structure. This implies that most businesses already pay corporate income tax as an entity, and any dividends declared for shareholders are often tax-free.

This is why dividend stocks are popular among Singaporean investors as part of their entire portfolio plan.

Now that you know why dividend stocks are so popular in Singapore, let us take a closer look at how you can invest in dividend stocks.

Compare dividend yields and historical payouts

The dividend yield is important when purchasing dividend stocks. T dividend yield is a company’s yearly dividend (in dollars or cents per share) divided by its share price, expressed as a percentage.

Inexperienced investors often make the mistake of buying stocks with the highest dividend yield.

While high-yield stocks are not inherently undesirable, it can often be a result of declining stock prices and may be attributable to a potential dividend cut.

One method is to compare the company’s dividend yield to that of its peers and competitors. Aside from that, use the company’s historical dividend yield and payout as a reference.

The test of free cash flow

Another way to invest in dividend stocks is to conduct a test of “free cash flow” for the company that you intend to buy.

A simple way to calculate a company’s free cash flow is by deducting capital expenditures from operational cash flow.

In general, a company is in a better position if its free cash flow is greater than the dividends paid as it reflects the sustainability of the dividend payout going forward.

Buy Singapore blue-chip dividend stocks

Singapore blue-chip companies with strong and stable cash flow are usually dividend investors’ favourite options. There are good reasons for that.

These firms often possess a business moat that allows them to sustain long-term earnings and provide reliable dividends to their shareholders.

One good example of this are the three big banks in Singapore, namely DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank Ltd (SGX: U11).

Their dividend yields currently range from 4% to 5%, depending on the various share prices.

S-REITs another popular choice for dividend investors

Singapore REITs is another popular investment for dividend investors. In Singapore, REITs have dividend yields that range around 5% or more.

With the recent pullback in share prices, the dividend yields of Singapore REITs have become even more attractive.

Generally, a REIT that is more popular will see a higher share price, which results in a lower dividend yield.

What to do with dividends received?

The advantage of investing in dividend stocks is that you will continue to receive dividend payments regardless of the share price – as long as the firm continues to pay them.

What you choose to do with your dividends is up to you. You can reinvest them to buy more shares of the company, buy stocks in a different company, save the cash or spend the money.

While there is no guarantee that every company can maintain their dividend payout throughout different economic cycles, a diversified portfolio that consists of dividend stocks can produce steady income come rain or shine.

Dividend investing complements your investing portfolio

Whether you are a novice or an experienced investor, dividend investing will certainly enhance the resilience and potential of your portfolio.

If you are new to investing, starting early provides you with a head start, particularly if you reinvest dividends to create a snowball effect that capitalises on the compounding process.

Meanwhile, dividend-paying stocks give a seasoned investor a level of portfolio stability. This is particularly crucial in the current volatile market.

While you cannot completely eliminate investing risk with a dividend strategy, you can lower the level of risk.

Personally, I focus less on a company’s dividend yield and more on its ability to consistently increase its dividend over the long term.

I encourage all investors to do the same when thinking about which dividend stocks to buy.


Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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