Dividend stock strategy (from perspective as a Singaporean)

I have read articles about people investing in dividends paying stocks as part of their investment and retirement strategy.  

Dividends are profits you receive from your share of ownership in a company, which may be paid to you in cash or in kind. For example, a company may pay dividends to you in the form of company's shares.

This got me intrigued as I look into instruments that can help with my returns.  At the same time, I thought of adding some "defensive" stocks that can do well in a recessionary climate.  On top of these, some of them do pay out good dividends.  

With Singapore's current inflation expected between 2.5 to 3.5%, leaving money in local banks that pays an interest rate of 0.05% does not make sense.  Thus, I started to look around for stocks with dividend yields that will at least beat the ongoing inflation.

Dividend Aristocrats

I began to research companies that pay out the best dividends, leading me to dividend aristocrats which are US-based.  To qualify for the title of dividend aristocrat, you will need to be a company in the S&P 500 index that not only consistently pays a dividend to shareholders but annually increases the size of its payout. A company will be considered a dividend aristocrat if it raises its dividends consistently for at least the past 25 years.  25 years speak of "stability" and "reliability" over at least 25 years.

The recent 2021 list of (US-based) dividend aristocrats can be found in this list published by Time.com on 

https://time.com/nextadvisor/investing/dividend-aristocrats/

Before we start jumping into these stocks, we will need to consider withholding tax as citizens of our respective countries.  In this case, I will be looking at withholding tax as a Singapore citizen.

Withholding Tax

The data is found from the following website: https://financialhorse.com/withholding-tax/ which was last updated in 2020.  

Withholding tax rate on dividends (for Singapore citizens) 2020

With US dividends imposing a 30% withholding tax, it is a massive "loss" of dividend income.  Thus, if we are hoping for the dividend to beat inflation, we must factor this based on the country where these stocks are listed.

The table above made it clear that receiving Hong Kong, United Kingdom and Singapore based dividends will be most beneficial as there is no withholding tax incurred for Singapore citizens.

More details about international tax for Singapore can be found in the article below by Deloitte in 2021:

https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/tax/sg-tax-international-tax-singapore-highlights-2021.pdf

Dividend tax in Singapore

More details can be found on the following IRAS website for Singapore citizens:

https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/dividends

Some of the best paying HK dividend-paying stocks as per 31Dec2021 

The list above showed some of the best paying HK dividend-paying stocks.  With Hong Kong not imposing withholding tax for dividends paid out to Singapore citizens, Hong Kong became an attractive place for us to consider dividend-paying stocks.  

However, I have recently noted that Chinese companies that are listed in Hong Kong do impose a dividend related tax of 10% recently.  The stock involved was 0857.HK PetroChina during its dividend payout in Oct 2021.  More research needs to be done for this.

Here is a list of Hong Kong blue-chip companies with dividend yields of more than 4% per annum: 

https://www.drwealth.com/28-hong-kong-blue-chips-with-dividend-yields-higher-than-4/ 

Final Recommendation

While it is exciting to see the dividend rate, let us not forget to do our due diligence to check on the business fundamentals before investing.  Personally, I chose the "safer" route of investing in Chinese state-owned companies that are listed in Hong Kong.  Do not forget to check on the withholding tax from where you are based.