It's widely acknowledged that investors in Singapore favor dividend stocks. This preference is understandable given that dividend stocks not only offer a consistent income stream but also the potential for capital appreciation.

For investors seeking dividend income, dividend exchange-traded funds (ETFs) present a compelling alternative to individual stocks. Dividend ETFs are particularly attractive for those seeking passive income without the need for active stock monitoring and management.

Interested in diversifying your portfolio with dividend ETFs? This article delves into key considerations before investing in dividend ETFs and highlights several ETF options worth considering.

Table of Contents

1. How to Choose Dividend ETFs
2. Dividend ETFs in Singapore for Long-term Holding
3. How to Purchase Dividend ETFs in Singapore
4. Generating Dividends in Singapore with Dividend ETFs

How to Choose Dividend ETFs

Dividend Yield

The first metric to consider when evaluating an ETF is its dividend yield. Dividend yield indicates the amount of dividend income earned per dollar invested and is calculated by dividing the annual dividends paid per share by the share price.

Dividend Yield = Annual Dividends Per Share / Price Per Share

Examining the dividend yield provides insight into the expected dividends over the next year. For instance, if an ETF has a market price of $150 and a dividend yield of 6.67%, it would yield approximately $10.05 in dividends.

However, it's essential to note that high yields may not necessarily indicate strong performance and could result from declining stock prices, potentially leading to dividend cuts or eliminations.

Expense Ratio

The expense ratio measures the cost of owning a dividend ETF, encompassing management fees, administrative expenses, and trading costs. These fees, deducted from investments, vary across ETFs.

For example, if a fund has an expense ratio of 0.25%, investors would pay $25 annually for every $10,000 invested in the fund.

Generally, expense ratios exceeding 1% are considered high and should be avoided, as they could significantly impact returns over the investment horizon.

Assets Under Management (AUM)

AUM refers to the total value of assets managed by an ETF. In general, higher AUM indicates a more established and trusted ETF with greater liquidity.

Dividend ETFs in Singapore for Long-term Holding

1. SPDR® Straits Times Index ETF (ES3)

   • Dividend yield (12M): 4.13%
   • Assets under management: $1,504.15 million
   • Expense ratio: 0.26%
   • Distribution frequency: Semi-annually
   • As of February 2024

   Established in 1966, the SPDR® Straits Times Index ETF is Singapore's first locally created ETF. Designed to track the performance of the top 30 companies listed on the Singapore Exchange, it offers diversified exposure to sectors such as telecommunications, consumer staples, and technology.

2. Lion-Phillip S-REIT (CLR)

   • Dividend yield (12M): 5.31%
   • Assets under management: $369 million
   • Expense ratio: 0.60%
   • Distribution frequency: Semi-annual
   • As of December 2023

   Managed by Lion Global Investors and Phillip Capital Management, the Lion-Phillip S-REIT ETF provides exposure to a diversified portfolio of S-REITs across retail, industrial, office, and healthcare sectors.

3. NikkoAM-StraitsTrading Asia ex Japan REIT (CFA)

   • Dividend yield (12M): 5.86%
   • Assets under management: $371.95 million
   • Expense ratio: 0.55%
   • Distribution frequency: Quarterly
   • As of February 2024

   As one of the largest REIT ETFs in Singapore, the NikkoAM-STC Asia REIT ETF offers exposure to real estate sectors in Asia, including retail and hospitality, across markets like India, Hong Kong, and South Korea.

How to Purchase Dividend ETFs in Singapore

To buy dividend ETFs in Singapore:

1. Open a CDP securities account.
2. Select a brokerage platform regulated by the Monetary Authority of Singapore (MAS) and create an account.
3. Fund your trading account and begin trading.

Generating Dividends in Singapore with Dividend ETFs

Investing in dividend ETFs provides a reliable means of generating regular dividend income while offering diversification without the complexities of active stock selection and monitoring.