Dividend investing is a popular strategy with Singapore investors, but does it still make sense today?

Dividend investing is a popular strategy with Singapore investors, but does it still make sense today? Regular payouts offer a buffer against inflation and market volatility, but leaning too heavily on income assets can mean missing out on growth, experts say. SINGAPORE: Dividends and income-generating assets remain a draw for many investors here, but experts warn against overweighting a portfolio in their favour. “The biggest risk is mistaking income for safety,” said Mr Chez Anbu, head of wealth advisory at OCBC. “Dividend stocks can fall sharply, companies can cut payouts, bond issuers can default, and funds may sometimes pay distributions from capital rather than investment income.” Investors may also become overly concentrated in income sectors such as banks, property and real estate investment trusts (REITs). Every portfolio needs an income engine and a growth engine, he added. “The objective should be to generate enough income today while ensuring that the portfolio can continue supporting the investor tomorrow.” Mr Cheng Chye Hsern, head of investments at wealth advisory firm Providend, said investors who focus too much on dividends may miss out on high-growth areas. Stocks that pay higher dividends typically have lower growth prospects, while companies with strong growth tend to reinvest profits instead of paying them out, he said. With the market currently focused on artificial intelligence stocks, total returns in that space have been markedly higher. A diversified portfolio can capture returns across different sectors, said Mr Cheng. “While the idea of cashflow from your investment portfolio is enticing, do remember that cash dividends are paid out of the cash from a company’s balance sheet, correspondingly reducing the share price of the company directly,” he said. With index funds and zero-fee investment platforms now available, retail investors can more easily convert total returns into cash streams without relying on dividend payments, he added. Income assets such as REITs and bond funds remain sensitive to interest rate fluctuations. “Investors who are looking to build a dividend or income portfolio should be prepared for volatility around the market value of their investments,” he said. “VALUABLE ANCHOR” Still, there are reasons to build a dividend portfolio. “In uncertain market environments, regular income acts as a valuable anchor for a diversified retail portfolio,” said Mr Ritesh Ganeriwal, head of investment and advisory at investment platform Syfe. He described it as a steady, tangible source of returns that does not rely on markets continuing to rise. Underlying business fundamentals remain strong, though ongoing political tensions have been pressuring financing and energy costs, he said. Singapore banks and REITs are still paying good dividends. Geography matters too – fixed-income assets in the US are generating higher yields than stocks, while in Singapore, stocks "comfortably out-compete" government bonds. “These assets effectively allow retail investors to get paid to wait while we navigate near-term macro challenges,” said Mr Ritesh. OCBC's Mr Anbu said regular income can also help investors avoid having to sell assets during a market downturn. He pointed to inflation as the strongest reason to build a dividend portfolio: money left in low-yielding deposits may be safe, but investors need better returns to keep pace with the rising cost of living. “This makes it sensible to put part of one’s savings to work in income-generating assets,” he said. LIFE STAGE, RISK APPETITE Ultimately, investors need to weigh several factors when deciding on a strategy, the analysts said. Young investors may lean towards growth, while those approaching retirement may prioritise predictable income. Mr Ritesh said dividend portfolios suit retirees who need to fund monthly living expenses, as well as passive, long-term investors who want to reinvest dividends for compounding growth. But OCBC's Mr Anbu said even retirees should avoid holding only income assets, since retirement can last for decades and inflation may erode purchasing power over time. A portfolio must continue growing to support future spending, he said. He advised investors to first assess their need for cash flow. Holding cash or short-term investments can help cover near-term expenses, while high-quality bonds or bond funds can provide predictable income. Dividend stocks, REITs or equity-income funds can then add a growth dimension to the portfolio. “The mix should reflect the investor’s time horizon and ability to tolerate losses, he said. “Someone needing stability should take less equity and credit risk. Someone with a longer horizon can hold more growth-oriented income assets.”