Best High-Yield Dividend Stocks

For investors interested in generating regular income, high-dividend stocks may be a worthwhile consideration.

Dividend stocks are shares of companies that distribute a portion of their profits to investors regularly. These payments can be made annually, semi-annually, quarterly, or even monthly. Some top dividend stocks offer yields averaging around 11-13%.

The top dividend stocks are typically those of established companies with a history of increasing their payouts over time.

Investors also have the option to reinvest these dividends if they don't require immediate income. Find out more about dividends and how they work.

Companies that consistently pay dividends are often financially stable, making dividend stocks a potential source of portfolio stability. This is why they are often included in lists of lower-risk investment options.

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Below is a curated list of some of the highest-dividend stocks headquartered in Singapore, ranked by annual dividend yield. The list also includes other dividend-paying stocks, which may not have high yields but are best known for consistent payouts and long-term financial stability.

For Singaporean investors seeking exposure to dividend-paying companies, there are two primary approaches: investing through funds, such as dividend-focused exchange-traded funds (ETFs) or index funds, or buying individual dividend stocks directly.

Dividend ETFs and index funds offer a simplified way to gain diversified exposure to a basket of dividend stocks with a single transaction. This allows you to own a portfolio of dividend-generating companies, and the fund will then distribute dividends to you at regular intervals. 

A key advantage of this fund-based approach is the inherent diversification; should one company within the fund reduce or suspend its dividend, the impact is mitigated by the continued income from other holdings.

Whether you invest in dividend stocks directly or through dividend funds, reinvesting those dividends can significantly enhance your returns. Dividends typically boost the return of a stock or dividend fund by a few percentage points.

This difference can be substantial over time. Using an investment calculator, a S$7,500 investment growing at 6% annually for 20 years could reach over S$24,000. Increasing that growth to 8% to account for dividends could result in that S$7,500 growing to over S$35,000.

Generally, it's prudent to allocate the majority of your portfolio to index funds, as discussed above. However, directly investing a small portion in individual dividend stocks also offers advantages.

While this requires more investor effort, investors who select individual dividend stocks can create a bespoke portfolio that may offer a higher yield than a dividend fund. Furthermore, expenses can be lower with direct stock ownership, as ETFs and index funds charge an annual expense ratio.

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Building a portfolio of individual dividend stocks requires time and effort, but many investors find it rewarding. Here's how to purchase a dividend stock:

1. Find stocks that pay dividends

You can identify the best dividend-paying stocks on various financial websites and your online brokerage platform. Free stock screeners are also helpful resources.

If you're hesitant to invest real money initially, consider paper trading to practice investing with simulated funds.

Learn more: Best Brokerage Accounts To Start Your Investment Journey In Singapore

2. Analyse the stock

To assess a high-dividend stock, begin by comparing dividend yields within its industry. A significantly higher yield compared to peers might signal potential issues, warranting further investigation into the company and dividend sustainability.

Examine the stock's payout ratio, indicating the proportion of earnings distributed as dividends. An excessively high ratio—generally above 80%, though industry norms vary—suggests the company is allocating a substantial portion of its income to dividends. 

In some cases, payout ratios exceeding 100% can indicate unsustainable practices, such as borrowing to fund dividends.

Learn more: How to build a dividend portfolio for beginners

3. Consider how many shares to buy

When you start investing in Singapore, it is important to consider diversification. Determine the appropriate percentage of your portfolio to allocate to each stock. For instance, with 10 stocks, you could allocate 10% to each. If a stock carries a higher risk, consider a smaller allocation and invest more in lower-risk options.

If you plan to reinvest dividends, remember to recalculate your cost basis — the original purchase price of the stock. The safety of the dividend is also paramount. Exercise caution with dividend yields above 4%, and scrutinise yields exceeding 10%, as they may indicate unsustainable payouts or declining stock prices.

For Singaporean investors, you can generally be assured that dividends are not taxed due to the absence of capital gains tax, but it's always prudent to verify the specific tax implications with a financial advisor.

Learn more: All you need to know about income tax In Singapore

The most desirable dividend stocks aren't always those with the highest yield. A high dividend yield can be misleading; it might indicate unsustainable payouts or simply reflect a depressed stock price. Companies that overspend on dividends may eventually be forced to reduce them.

While the stocks in the chart may have high yields, they aren't necessarily the best dividend stocks for every investor. For instance, if your portfolio is heavily weighted in energy stocks, you might want to avoid adding more. 

The ideal portfolio to make money from stocks varies based on individual investment goals and time horizons. Moreover, many investors find index funds a more suitable investment than individual stocks.

For investors seeking dividend stocks with a lower risk of dividend cuts, consider dividend aristocrats – a group of stocks that have consistently increased their dividends annually for at least 25 years.

Learn More: How to buy and trade stocks in Singapore for beginners

At the time of publication, the author and the editor did not possess any financial interest in the investments discussed.