What would you do with an extra $1,000 in passive income each month? Would you treat your family to dinner at Nobu? Save up for a Christmas ski vacation? Put it towards a down payment for a Tesla? The possibilities are endless!
Generating $1,000 in monthly passive income may seem far-fetched in Singapore, but we’re here to tell you it’s actually within reach for many people.
One way is to build a passive income portfolio using dividends from Singapore REITs. How much would you need to invest and how long would it take? We break it down for you below.
What’s the dividend yield for Singapore REITs?
Before we go further, let’s look at why Singapore REITs are an attractive choice for dividend investing.
Firstly, REITs are real estate investments that generate rental income from properties such as shopping malls, office buildings, hotels, warehouses and more. Because they’re required to distribute 90% of this income as dividends to investors, many Singapore REITs have averaged dividend yields of 5% to 6%. In other words, if you invest $10,000 into a REIT with a dividend yield of 5%, you’ll receive $500 in dividends for that year.
This is more attractive compared to other investments such as Singapore stocks (Straits Times Index) or government bonds.
How to create a $1,000 / month dividend income portfolio
A dividend income portfolio is simply a portfolio consisting of dividend-paying investments. Given that Singapore REITs offer relatively high dividend yields, they’re a popular choice among many Singaporean investors.
If your target is $1,000 in passive income each month, your REITs portfolio will need to generate $12,000 in dividend income each year. Let’s take the average dividend yield to be 5% every year – a somewhat conservative estimate for Singapore REITs. Your portfolio size will then need to be $240,000 (5% x $240,000 = $12,000).
But don’t let this seemingly high figure put you off! You don’t have to invest a lump sum of $240,000 all at once. Instead, you can start with a smaller initial investment and follow up with monthly contributions.
Here’s a sample plan.
In 18 years, your portfolio value will grow to around $255,286, assuming all dividends were reinvested to boost the compounding effect. If we assume a constant 5% annual dividend yield, this provides you with $1,064 in monthly passive income. At this point, you can stop your monthly contributions and begin withdrawing your dividends to spend!
A more optimistic outlook
Assuming a 5% dividend yield with no capital appreciation is more of a base-case scenario. Over the long term, REITs tend to offer both dividend yield and the potential for capital appreciation. On average, if we take dividend yield to be 5%, and capital appreciation to be 2% each year, the long-term total return for a REIT could approach 7% each year.
Based on this scenario, it would take 15 years to build a portfolio value of $241,843. At a 5% dividend yield, this would provide you with $1,008 per month in dividend income.
How to earn passive income sooner
If you can invest more, you can achieve your passive income goal considerably sooner by increasing your initial investment and / or monthly contributions.
Here’s an example that shaves off 5 years from the sample plan earlier. In just 10 years, your portfolio could grow to $252,304. At a 5% dividend yield, this would provide you with $1,051 per month in dividend income.
That said, investing is a marathon, not a sprint. What’s more important is finding an investment plan you can commit to for the long haul. This will enable you to comfortably maintain your regular investments, which is half the battle won!
The power of compound interest
Remember how the sample plans above involved your dividends being reinvested? That’s because reinvesting your dividends is the best way to benefit from compound interest.
Let’s illustrate this with an example. Assume that you invest $10,000 today in a REIT that averages 5% dividend yield each year.
Notice how your annual dividends earned increase each year if you reinvest them? That’s because your reinvested dividends are used to buy more shares of the REIT, thus providing you with even more dividends.
In essence, compound interest is a virtuous cycle where you not only earn returns on your principal sum, but also earn additional returns on your returns.
Contrast that with the scenario where you don’t reinvest your dividends. You’d miss out on the benefits of compound interest and only receive $500 in dividends each year.
The takeaway is that the power of compound interest can also help your portfolio grow more quickly. Whichever investment plan you choose, reinvesting your dividends is key to achieving your target monthly passive income.
What are the best REITs in Singapore for dividend investing?
Office REITs and retail REITs historically have higher average dividend yields. In 2022, rents in Singapore’s office and retail sector have rebounded on robust demand and the easing of pandemic restrictions.
However, picking REITs based only on the highest dividend yield may not necessarily be the best course of action. As the saying goes, don’t put all your eggs in one basket.
For instance, office and retail REITs came under pressure during the COVID-19 pandemic. A portfolio exposed to just these two sectors would have been affected by the work-from-home mandates and various social restrictions.
A better approach would be to invest in a diversified REIT portfolio spanning all property sectors like retail, industrial, data centre, office, hospitality, and healthcare. Should any one sector face industry headwinds, your exposure to other sectors can help cushion the impact.
Consider Syfe REIT+ for example. The portfolio holds 20 of Singapore’s largest REITs including:
- Ascendas REIT (SGX:A17U)
- CapitaLand Integrated Commercial Trust (SGX: C38U)
- Mapletree Commercial Trust (SGX: N2IU)
- Keppel DC REIT (SGX: AJBU)
- Parkway Life REIT (SGX: C2PU)
- Ascott Residence Trust (SGX:HMN)
This broad diversification helps REIT+ weather market ups and downs better. In 2022, the estimated dividend yield for Syfe REIT is 5.5%.
Make $1,000 a month in passive income in Singapore
Earning passive income through dividend investing is an effortless way for Singaporeans to supplement their paychecks.
Yes, it will take some patience and discipline to invest consistently and grow your dividend portfolio over time. Rome wasn’t built in a day after all. But if passive income is what you seek, the payoff can be worth it.
Ready to get started? Consider using Syfe REIT+ as your dividend portfolio. There’s no lock-in period and no minimum investment needed. Plus, dividends will automatically be reinvested for you at no additional cost.