3 Dividend Pitfalls for Dividend Seeking Investors

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There is nothing wrong with investing in dividend stocks to generate passive income for your retirement planning. However, it will cause a huge dent in your retirement portfolio if you are investing wrongly. The following are the 3 dividend pitfalls that you have to avoid.

Pitfall No 1: High Dividend Yield is Lagging

Everyone wants to invest in shares which give high dividend yield. It is a no-brainer to choose Share A with a 10% dividend yield over Share B with a 4% dividend yield. However, investors need to be very careful when investing in shares with high dividend yield because ‘dividend yield’ is a lagging number. The high yield could be caused by a sharp drop in the current stock price due to weakening of the fundamentals or poor forward-earning guidance. Investing in such shares may instead cause investors to lose part of the capital invested and receive reduced dividend in the future.

dividend yield - financial alliance

Pitfall No 2: Dividend Pay-out Ratio is Not Guaranteed

There is no guarantee that the underlying shares will continue to pay dividend. The management can change the dividend pay-out ratio due to the company’s profit & loss position, cash flow situation, future expansion considerations and other reasons. Thus, the dividend from Real Estate Investment Trust (“REIT”) is more predictable compared to normal shares, because a REIT must distribute at least 90% of its taxable income to shareholders.

Pitfall No 3: Dividend Pay-out from Capital

Most investors do not read the fine print in the fact sheet before signing the agreement. Quite a number of mutual funds or unit trusts have the flexibility to pay dividend from capital when there is a need to. Such a dividend-paying practice is akin to you paying yourself dividend from your own bank account.

Nowadays, there are many advertisements promoting various investment products which give high dividends to generate passive income for your retirement planning. However, it is very important to pay attention to the above 3 dividend traps before you invest your hard-earned money. Ensure that you consider the above 3 factors, ask questions and get a satisfactory answer before signing any agreement. Alternatively, get a qualified and experienced investment advisor’s help in building your investment portfolio to minimise costly mistakes that may plague you later on.


Kenny Loh is a Senior Consultant at Financial Alliance, the largest Independent Financial Advisor in Singapore. He has won 4 Awards in 2017, Financial Alliance Quality Class Merit Award, Top 5 Investment Asset Under Advice (AUA) Award, Rookie Consultant of the Year Award and Best Practice Consultant Award. Visit his personal profile here:https://fa.com.sg/kennyloh/

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Top Investment Advice to Beginners: Start with this NO RISK asset class

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Two of the most common questions from retail investors when I conduct investment classes or private investment portfolio review are:

  1. How to get started to invest?
  2. What is safe to invest?

I hope this post can help all retail investors (especially beginners) to get started safely and easily before moving into more complex asset classes like shares, bonds, ETF (Exchange Traded Fund), ILP (Investment Linked Policies sold by insurance companies), Endowment Policies, REIT (Real Estate Investment Trust), unit trust, commodities, structured products, alternative investment, private equity, etc.

As a Licensed Financial Advisor who specializes in Investment Portfolio Advisory, I would recommend  to start with Singapore Saving Bonds (SSB) as this asset class is virtually NO RISK, NO PRICE VOLATILITY and GOOD LIQUIDITY (with one month redemption notice). Some people would argue that that is not true that SSB has no risk. However, I am not going to debate it because there are much bigger problems to deal with if Singapore government goes bankrupt, due to the reasons that all government linked companies and our saving / investments in various Singapore banks, SRS and CPF all will be affected.

This month SSB gives investors a 10-year average risk free interest rate of 2.16%. This return is definitely higher than the bank saving interest rate of 0.05%. This is a very straight forward comparison and no-brainer decision to make. Investors may use SSB as a parking facility of your emergency fund (recommended 6 months of indispensable monthly expense). You may engage a Certified Financial Planner if you need help to find out your indispensable monthly expense and conduct a Personal Financial Health Screening to calculate your own financial ratio, by setting up personal income statement and net worth statement to keep track of your financial health annually.


2 Simple Steps to subscribe to Singapore Saving Bonds (Get it Started!)

  1. Open a CDP Account with SGX. https://dollarsandsense.sg/step-step-guide-opening-cdp-account-singapore/
  2. Subscribe to Singapore Saving Bond. http://www.sgs.gov.sg/savingsbonds/Your-SSB/How-to-buy.aspx



For investment who would like to have an independent and unbiased investment advice to the current investment portfolio with the following objectives, you may engage Kenny Loh (kennyloh@fapl.sg)

  • Risk Assessment of Current Portfolio
  • Optimise the Risk Adjusted Return of the Portfolio
  • Construct a Diversified Portfolio for Retirement Needs (Capital Growth Strategy or Passive Income Generation)
  • Safe Guard and Ring Fence Current Investment Assets from Creditors, Inheritance Tax, Estate Duty or Mental Incapacity.
  • Review Pro/Cons and suitability of the investment options recommended by Banks (unit trust, bonds, structured products), Insurance companies (ILP, Endowment, Whole Life Plan) or Property Agents (is physical property the only investment options?) before officially signing the contract and committing huge amount of money.

Kenny Loh is an award winning Financial Consultant from an Independent Financial Advisory firm. He won Top 5 Investment AUA Award for 2018 with million dollars of investment under his advisory comprises Unit Trust, Shares, Bonds, REITs, ETF, Alternative Investment, Structured Products, Commodities, Property Funds, M&A Private Equity fund, Angel Investment fund, etc.

He does not believe “One Size Fit All” Investment strategy because different investors have different needs, different investment objectives at different life stages. He personalises and customises every individual portfolio to meet the financial needs with the appropriate asset classes with pre-assessed client’s risk profile.

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