Record-Breaking Dividends: A Year of Exceptional Returns

A banner year for dividends!

With all income counters reporting their final quarterly results, 2024 has officially concluded as a record-breaking year for dividends collected. It’s truly gratifying to witness the growth, compounded annually at near to 13%.

How did I do it?

Two factors contributed to the growth:

• Most of the companies I invested have increased or sustained their dividends since my first purchase.
• Rebalancing my portfolio to keep my allocation of income to growth counters at a ratio of 60:40.

Invest in companies with track record of sustaining dividends

If you want to invest for income, the key is to look for companies that have a track record of sustaining or increasing their dividends. While we can’t tell if the companies can continue to do that, the past in general provides good indication.

These businesses often exhibit strong fundamentals, steady growth, and robust balance sheets.

While they might not grow as rapidly as the fast growers, you should expect an increase in their revenue, net income and free cash flow over the years. Futhermore, these companies typically carry little debts and are in net cash positions.

Although temporary setbacks might occur, well-managed companies are likely to emerge stronger and continue their dividend growth trajectory.

Increase the investment amount

It’s common sense isn’t it?

To get more absolute dividends, you will have to gradually increase your investment amount over time. If you are still in the workforce, this can be achieved by consistently allocating a portion of your savings.

Additionally, reinvesting dividends can significantly amplify returns through the power of compounding.

Now that I’ve stepped away from regular work for two years, I have found another strategy to boost dividend income: utilising profits from my growth portfolio.

While this wasn’t the original intention, my strategy of maintaining a 60:40 ratio for income to growth counters, has led to a surprisingly high 75% allocation to income stocks based on cost.

Despite the reduced allocation to my income portfolio, it still managed to deliver a positive total return, though lower than my growth portfolio.

Why not focus on growth stocks and forgo the income?

You might wonder why I continue to maintain an income portfolio, given the superior returns of my growth portfolio. There are two compelling reasons.

First, it provides a crucial buffer against market volatility, especially during downturns like those experienced in 2020 and 2022. This stability helps me avoid impulsive decisions, like panic selling, and in turns I am more likely to benefit from the long-term returns of the growth stocks.

Second, income stocks offer a consistent cash flow, which is more predictable than capital appreciation. Given my current life stage, this reliable income stream is a higher priority.

Lower dividends anticipated for 2025

Based on current projection, dividends for next year will decline by around 5%. This is primarily due to the earlier drawdown of portfolio to fund my 2027 expenses and also the advance distribution by Parkway Life REIT.

I am not overly concern about the drop as I remain optimistic about the long-term dividend growth potential of my investments. By continuing to invest in companies with robust fundamentals, I am likely to be rewarded with higher dividends over time.

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