$12,000 Dividend Per Year: Here's How Much You Need To Invest!

Your 5Cs Singaporean Dream? Outdated.

There might just be a new definition for the Singaporean dream. Forget the typical 5Cs (car, cash, credit card, condominium and country club membership) that was commonly used to determine how successful someone is in life, and allow me to present to you the cold hard truth. 5Cs is too old school.

The new Singaporean Dream is, TO JUST SURVIVE!

With crazy car prices, expensive property prices, an outdated country club definition of wealth, Singaporeans’ evolved goal in life is to:

• Retire early
• Generate enough passive income to allow the early retirement to happen.

Retirement Age vs Years of Good Health

The official retirement age of Singapore does not take into account the number of years which Singaporeans are still able to enjoy retiring. Retirement age is a number decided alongside policies on what is beneficial for the country and it may not necessarily benefit individual Singaporeans.

Here are some reasons why the official retirement age may not equate to happy Singaporeans:

• The decision on the retirement age might have taken the life expectancy of Singaporeans into account, instead of the average age of Singaporeans in good health.
• While retirement age can be constantly pushed backwards, the average age where Singaporeans have their good health cannot be changed.

Hence, retiring early is totally up every individual Singaporean to start planning early.

With that, building a dividend income portfolio is one of the many ways Singaporeans can achieve financial freedom before the prescribed retirement age.

TL;DR – How Much You Need To Invest To Have A Sustainable Dividend Income Portfolio?

What Is A Dividend Income Portfolio?

What exactly is a dividend income portfolio, and what is all the hype about?

Dividend stocks are stocks that give dividend payouts based on their profits over the year. Should an investor invest in a dividend stock, he receives income in form of dividend given out by the stock.

The rule of the dividend income portfolio building game

Imagine this: Your stocks portfolio gives you enough every year to a point where you no longer have to depend on your salary for your expenses.

That is the goal of every investor and this is how to build a dividend income portfolio:

• Certain stocks give dividend payouts based on their profits over the year.
• Investors can use his prefered method to identify and screen out solid stocks and investment instruments to invest in.
• From there, investors will build his investment portfolio.
• The objective is to build an investment portfolio which can replace your expenses and salary.
• Once that objective is achieved, financial freedom may not be too far away!

Dividend Investing – How much should you be investing in total?

Back to the rule of building an investment portfolio which can replace your expenses or salary, we work backwards to find out the portfolio size required to achieve it.

From here, we can all plan ahead and hopefully, retire early.

I’m thinking of a holiday to celebrate this milestone at the Maldives before the age of 40 years old. How about you?

Set a target.

Identify how much you want your investment portfolio to fetch you every month.

Here are some of the numbers we use for better estimation of the amount we need for retirement:

• Basic monthly expenses for Singaporeans after retirement is at $1,200 per month.
• Median take-home salary of a typical Singaporean worker at $3,089 per month.
• $4,699 is the median household spend per month.

With the total dividend one aims to achieve each year, we worked backwards to find out the percentage of dividend yield and the total amount of the portfolio.

What is the dividend yield?

The dividend yield is the percentage of a company’s dividend compared to its share price.

It can be calculated using:

Dividend Yield = (Annual Dividend)/ Share Price

How much does your portfolio need to be?

For better illustration, we are looking at a dividend yield of more than 3%.

Anything below the interest rate of Singapore Savings Bond (SSB) makes no sense for the risk that the investor will be taking.

Few things to take note of, when dividend investing :

• Company with the highest dividend yield may not necessarily mean that it is the safest stock.
• The above demonstrates that to achieve that amount of dividend, one needs to have a good amount of savings.
• The faster one managed to achieve the above where his dividend yield income every year exceeds his expenses, he achieves financial freedom!
• We cannot emphasize the importance of starting early and making use of the power of compounding interest to achieve this ultimate dream faster.

Further reading: Some example of stocks and their dividend yield

The total dividend yield of your portfolio depends on the amount one invests in each stock and the dividend yield of these stocks.

To list down some of the stocks and their dividend yield.

Data as of February 2019.

For stocks in SGX with a dividend yield of 3-4%:

For stocks in SGX with a dividend yield of 4-5%:

For stocks in SGX with a dividend yield of 5-6%:

For stocks with a dividend yield of 6-7%:

For stocks with a dividend yield of 7-8%:

We did a quick extraction of the data from the Singapore Exchange Limited (SGX) website, using the dividend yield filter.

source: www2.sgx.com

Start building your portfolio today to give you recurring income over time.

We strongly recommend one arms himself with sufficient knowledge before building his portfolio. Dividend yield itself is not the best indicator, it is important to read up more and have a better screener before proceeding to do so.