Sound approach to investing for income?

Reader says...

I am a Singaporean student who is interested in building up a dividend portfolio.

I like to seek your advise whether it is viable to reinvest dividends into shares of the same counter, as the commission seems too expensive to do so.





Is there any way which companies can give out share in place of dividends?

Will this be a sound approach to building a dividend portfolio?






AK says...

If we are investing for income, we want our investments to be able to pay dividends in cash. 

Sometimes, companies might ask if shareholders would like to receive their dividends in cash or scrip (which means new shares)?

If there is an opportunity for arbitrage, then, for the income investor, taking the dividends in scrip might make sense.






And I mentioned it before:

"Many S-REITs have DRPs (or DRIPs), Distribution Re-investment Plan. Some readers asked me if I would take part in these plans.

"My answer is that I invest in S-REITs for income. So, I would usually take the cash distributions unless there is a chance to benefit from arbitrage which happened once before for AIMS AMP Capital Industrial REIT and some might remember that I blogged about it."

For those who are interested in this:
http://singaporeanstocksinvestor.blogspot.sg/2013/05/aims-amp-capital-industrial-reit.html






Always question how is the company generating cash and ask if the dividend being paid is sustainable.

Otherwise, we could be investing for growth or it might be a value trap or it could even be a scam (or maybe I am just talking nonsense here).





As you are new to my blog, you want to read this blog:

http://singaporeanstocksinvestor.blogspot.sg/2015/10/invest-for-income-and-ignore-two-ms.html

If we would like to invest the dividends we receive from our investments, there is no hurry to do so unless Mr. Market is in a big depression.

If we don't need the money, save the money.

Build up our war chest.

And pounce when opportunity knocks.





I know that patience is sometimes the hardest thing. 

I know because I am human too.

http://singaporeanstocksinvestor.blogspot.sg/2013/02/little-book-of-value-investing.html

Related post:
Sit with all that cash and do nothing?

Stronger personal balance sheet and cash flow statement.

Reader says...
I need to spend more time to learn more about investment and not wait till it's too late.

I find it inspirational to read your blog and it motivates me to invest more to be like you.





I have some savings every month and would like to seek your advice on how I can manage it to optimize the very little amount and still be able to grow it further.

1) Reduce my housing loan with the bank in Jan 2020

2) Transfer money to SRS to reduce my income tax contribution for 2018

3) Put aside for my savings account

4) Put aside money for trading





Should I divide my savings evenly among the 4? And since the money in SRS cannot be withdrawn, do you think I should use it to trade?

AK says...
Welcome to my blog. :)

I am glad that you have realised the importance of investing for income.

I believe that you will thank yourself in your golden years. :)





For sure, unless we are born with a spoon made of some precious metal in our mouths, we need to save money in order to have money to invest with.

OK, I know we can also borrow money to invest with but not everyone can sleep well investing with borrowed money.

Indeed, I have a blog on how to have peace of mind as an investor and you might want to read the related posts at the end of this blog.





You have to know that I am not a financial adviser and I am not allowed to give specific advice to anyone.

As a blogger, however, it should be safe enough for me to talk about things in general and you have to make your own decisions.





1. If interest rates go much higher and is even higher than the 2.5% we earn on our savings in the CPF-OA, it makes sense for us to pay down our home loan, especially, if we don't know how to safely invest our savings for much higher returns.

2. Use the SRS to reduce income tax payable only if you have maxed out your CPF-SA. With the CPF-SA, you earn 4% to 5% per annum. 

If you decide to do this, remember, only the first $7K of top up (per year) to the SA will enjoy income tax relief. 







If you have more to contribute, let it flow into your SRS and you could use the SRS savings to invest for income (but dividends cannot be withdrawn until age 62 together with the SRS savings).

See: SRS: e-book and analysis.

3. We always need an emergency fund and a war chest. Having more money saved up is a good idea.

4. Of course, you should think about investing for income.





Which one you do and in what proportion depends on what is more important to you.

If you feel that some measure of financial security is more important while retaining flexibility, then, you should concentrate on #3 first, for example.





It doesn't take much to have a stronger personal balance sheet and cash flow statement.

It does, however, require a lot of discipline.

Related posts:
1. Peace of mind as investors.
2. Top Up SA, MA or SRS?
3. How much in Emergency Fund?