Retirement is the biggest milestone of one’s life as it changes the way of living of an individual. Retirement is the second innings of an individual’s life. Retirement termed as the golden phase of life as one has ample free time and money to cherish their desires yet most of the individual’s do not plan their finances effectively for enjoying a comfortable life. The investment market offers various investment instruments that offer means and ways to generate retirement income and one such way is Dividend Stocks.
Following is a complete guide of Dividend Stocks that will help you in understanding the investment instruments and ways in which you can generate retirement income and enjoy regular retirement income flow in the golden phase of your life.
What is Dividend Stock?
You must all be very well-versed with the term ‘Dividend’- it is the proportion of the reward paid to the shareholders from the profits earned by the company and dividend stocks refer to investing the money in dividend-paying stocks of companies in order to enjoy the steady income from dividends. Thus, a dividend is paid to the shareholders from the company’s profit earnings mostly in two ways:
- Cash Payments: Under this method, the company opts to pay the dividend in the form of cash to the shareholders. The company announces the dividend payout which is usually paid quarterly. The dividend payout is announced on the “per share” basis i.e. the amount of the dividend shall be calculated on the number of shares any individual shareholder holds.
- Shares of Stocks: under this method the company can opt to retain the earnings for further growth of the business. Alternatively, the company can also opt to offer additional shares to the shareholders by this method the shareholders can enjoy a higher share in the company and rise in the value of shares.
What is the frequency of dividend payment?
The frequency of dividend payment is usually decided by the company however it is observed that usually the payout is done on a quarterly basis. There are certain important dates related to dividend payment that every investor must know before investing in dividend stocks for example: to be eligible to receive a dividend on your stocks it is important for every investor to hold the dividend-paying stocks on the ex-dividend date.
Following is the detailed information related to all the important dates related to dividend payments.
- Declaration date: Declaration date is the date on which the company declares the payment of the next dividend and the details of its payment.
- Ex-Dividend Date: Ex-Dividend Date is the date set by the stock exchange. To be entitled to receive the dividend on the stocks it is important for the investor to hold the dividend stocks on or before the ex-dividend date.
- Payable Date: as the name suggests the payable date is the date on which the dividend shall be paid.
Kindly note, in cases where an investor is holding a SIP or mutual fund of dividend-paying stocks, the mutual fund company shall be liable to collect dividend from the company and pay them to the investors as per the pre-decided frequency, usually quarterly or monthly.
How is the payment of dividend made?
Now that we know the frequency of dividend payment let us now understand how the dividend is paid to the investor.
Following are various ways in which the payment of the dividend is made:
- A cheque is sent to the investor stating the dividend amount, the investor has to deposit the cheque and get the dividend amount credited to the bank account
- Investors can also directly submit their account details to the company so that a direct credit is received by the investors in their bank account
- Investors can opt for re-investment option where the amount of dividend is utilized to purchase more shares of stocks
- In case of the mutual fund, the dividend can be paid to the investor in cash or cheque or direct credit or alternatively, the investor can opt for re-investment option where the dividend amount is reinvested to buy more shares of the mutual fund.
What are the benefits of investing in Dividend Stocks Singapore?
Dividend is one of the most secure ways and means of gaining returns on the investments. Investing in dividend stocks Singapore can help investors to diversify their portfolio and shift the focus of the portfolio to an income-driven investment.
Following are the most important benefits of investing in dividend stocks:
- Regular cash inflows: Dividend payout promises regular cash payouts in the form of dividend which acts as an additional income for the salaried and retired individuals helping them to meet their financial needs.
- Safety Cushion: investing in stocks of companies that pay regular dividends ensures peace of mind to investors during tough economic times. A company paying regular dividends is considered to be resilient and strong companies who can withstand economic turbulence so investing in dividend stocks of good companies can ensure safety cushion against economic uncertainties.
- Tax Exemption: One of the biggest benefits of investing in dividend stocks is that the dividend received from equity holdings is exempted from the taxation net.
Thus looking at the above benefits it is easy to understand the benefits of investing in dividend stocks Singapore. Let us understand why investing in dividend stocks is a good way to generate retirement income. The post-retirement phase is a crucial phase of life as the regular flow of income cease. So it is very important to create avenues for regular income inflow to maintain a healthy and sustainable lifestyle.
Earning dividend income by investing in stocks is one of the best ways to generate retirement income for the following reasons:
- It ensures regular (monthly or quarterly) cash inflow thus ensuring retirees’ opportunity to sustain their current lifestyle and create a corpus to cover medical or financial contingencies.
- They offer high value for money by creating a corpus to tackle financial uncertainty
- Dividend received on dividend stock offers a significant amount of capital appreciation for the money invested thus making it one of the most effective way to generate retirement income
- Many dividend-paying stocks have low risk associated with them thus making it an ideal investment tool for retirees who wish to have a steady income post-retirement.
Thus investors should consider investing in dividend stock for building their retirement corpus as earning dividend income is convenient and easy.
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