Surviving on Dividends? How Much Do You Really Need?

Surviving on Dividends

Passive Income… that’s the dream isn’t it? Many Singaporeans constantly toss around the idea of passive income and building some form of passive inflow that could sustain your entire lifestyle.

My parents always talked about our relatives who stayed in condos and rented out their HDBs to others, getting “free money” every month for doing nothing. Or about how their stocks in their CDP account are sending them little checks every once in a while.

Well, that’s only half the story though.

To make passive income, the work is all done up front. Once the hard work is done, most people only see the payout but never how to get there. And to get there, we need to know what the goal actually is. After all, Stephen Covey always said, “Begin with the end in mind.”

Dividends... How Much Can You Get?

To understand how much you can get, or should I say yield, from dividend stocks, we need to know the amount of dividends that stocks usually pay.

Singaporean investors’ love for dividends are well-known, and the companies that pay handsome dividends are well-loved on the SGX. Household names like DBS, Ascendas REIT and ComfortDelgro are some of SGX’s favourite dividend stocks to hold.

Comparing the constituents of the Straits Times Index, the constituents on average pays out anywhere from 3% all the way to some on the high end at about 5% and above. The STI itself, holds a dividend yield in the high 3%!

Assuming we use 4% for our dividend yield, your capital can yield:

Capital Estimated Dividends Per Year Estimated Dividends Per Month
$100,000
$4,000
$333.33
$250,000
$10,000
$833.33
$500,000
$20,000
$1,666.67
$1,000,000
$40,000
$3,333.33
$3,000,000
$120,000
$10,000

I know, I know, who can really live it out with only $333.33 per month?

To even hit the $1,000 per month that most Singaporeans dream of when they think of passive income, you’d need around $300,000 to get there! Damn, son!

How Many Shares Though?

dbs areit comfortdelgro dividends

Envisioning a $300,000 portfolio ain’t easy, especially when your portfolio is only a few thousands now. Some people (like myself) can see it better when we look at the number of shares instead.

Looking back to the 3 original dividend stars, DBS, Ascendas REIT and ComfortDelgro, to hit $1,000 per month in dividends, we would need:

Company Dividend Yield (2020) Number of Shares Required
DBS Holdings Ltd.
3.94%
11,700
Ascendas REIT
5.35%
729
ComfortDelgro Corp. Ltd.
6.74%
112,684

Source: Dividends.sg

Now, I’m not saying to put it all into one stock for your retirement needs! That would be risky and would likely cause you unnecessary sleepless nights, worrying about dividend cuts and bad earnings.

How Now, Brown Cow?

Well, what can we do with this information?

The point of this post is not to discourage investors from seeking a dividend investing retirement strategy. In fact, it’s quite the opposite.

Many investors chase capital gains in the early part of their investing lives and gradually rotate to dividends as they get older. Likewise, I personally intend to retire with a portion of my portfolio in a diversified basket of dividend stocks in order to yield some cash flow in my later years.

But I think that what I’m trying to say is that you won’t develop a sufficient passive income from dividends just by thinking about it. What’s important is that you understand the need to build up a large capital in your working years, so that you can achieve the kind of lifestyle you desire in your retirement days. And all of this starts with a simple computation of how much you’d need to have in order to retire on dividends.

Most people dream of passive income but few stop to try and work out the math in order to take the right steps towards it. 

The best time to plant a tree was 20 years ago, but the second best time is now.

Photo by Eduardo Soares on Unsplash

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