As a child, I was captivated by the 80s fantasy film “The Neverending Story”.
The plot centers on Bastion, a young boy who gets transported to a mysterious fantasy world, where he uses his imagination and resourcefulness to help the friends he meets.
This cult classic feels dated. But it has influenced me far more than any Marvel or Star Wars movies today.
That’s because it taught me the value of creativity and imagination, which are just as relevant in income investing.
When investing, you can search for and achieve your version of the “Neverending Story”, provided you have the discipline and tenacity to build and grow your investment portfolio.
You could even find ways to build a “Neverending” portfolio to pass down to your kids or grandchildren.
Here’s how to do it:
Sowing the seeds of success
Everyone starts off their investing journey like Bastion.
Clueless, lost and overwhelmed. You might even assume you need a fortune to start investing.
But get creative, and you’ll realise you can simply start with just a few hundred or thousand dollars.
Even if it is just a few hundred or thousand dollars, you can allocate this money to dividend-paying blue-chip stocks and REITs.
Scooping up a hundred shares of Singapore Exchange Limited (SGX: S68), or SGX, or CapitaLand Investment Limited (SGX: 9CI), or CLI, is a quick and easy way to build momentum in your portfolio.
The former will cost you around S$953 while the latter costs just S$376 (excluding brokerage charges).
SGX will net you S$0.32 for every 100 shares in dividends, giving you S$32, while CLI has just paid out a cash dividend of S$0.12 for 2022, so your 100 shares will yield S$12 in dividends.
Or you could park some money in well-managed REITs such as Frasers Centrepoint Trust (SGX: J69U) or Mapletree Logistics Trust (SGX: M44U).
The retail REIT paid out a distribution per unit (DPU) of S$0.12227 for its previous fiscal year while the logistics REIT paid out a DPU of S$0.06743 for the first nine months of its fiscal 2023.
This amount may seem little and, indeed, it is not much at the beginning.
But everyone has to start somewhere and it’s these small moves that can eventually allow your portfolio to snowball into something much larger.
The same can happen for the dividends you receive, too.
Harvesting the fruits of your labour
As you gradually invest more money into your portfolio, these dividend amounts will also grow larger.
With more cash, you can consider buying 1,000 shares each of local banks such as United Overseas Bank Ltd (SGX: U11), or UOB, or DBS Group (SGX: D05), which will cost you around S$30,000 and S$33,000, respectively, per transaction.
DBS Group paid out S$2 per share in dividends for 2022, so your 1,000 shares will net you a cool S$2,000 in dividends.
Meanwhile, UOB doled out a total of S$1.35 per share in dividends last year, so 1,000 shares will provide you with S$1,350.
By owning just these two solid local banks, you will receive a total of S$3,350 in dividends.
The snowball effect starts becoming noticeable as your stream of dividends increases in tandem with the size of your investment portfolio.
Now and then, you can harvest the fruits of your labour by using some of these dividends for a nice holiday or a delicious meal.
This additional layer of income affords you the flexibility to enjoy your life without needing to tap on your active income.
Soaking in the magic
The real magic, however, comes from the consistent compounding over the years.
By generating dividends and then reinvesting them in the same stocks that paid out these dividends, you can accelerate the growth of your portfolio to better prepare yourself for retirement.
With a portfolio of S$1,000,000 and a dividend yield of 5%, your passive income flow will hit S$50,000 a year, or a cool S$4,000 plus a month.
That’s enough for most people to enjoy a decent lifestyle post-retirement while having spare cash for an occasional holiday.
And like a well-oiled machine, your portfolio should perform like clockwork to churn out dividends to last you for a lifetime.
When you have hit your magical portfolio number, you can happily soak in the magic just as Bastion did when he became the hero at the end of the movie.
Your diligence will enable you to enjoy an almost “never-ending” stream of dividends that you can even pass down to your loved ones.
And to us, that is indeed the magic of investing.
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Disclosure: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.
https://thesmartinvestor.com.sg/get-smart-how-to-receive-passive-income-for-life/
