Q3 Dividend Income Down 8.6%: Why I’m Not Panicking

The trend looks worrying at first glance, doesn’t it?

After steady growth from 2020, dividend income saw a brief pit stop in 2023 and supercharged in 2024. Another breather last year, but the upward climb did not resume this year.

In fact, after five consecutive years of growth, my Q3 dividend income dropped by 8.6% YoY, falling from $10,451 to $9,550.

Looking purely at the chart, it naturally brings the question to mind: Does slowing growth followed by a payout drop signal a broken strategy?

Well, context is everything. Here are the three reasons why I’m not panicking about a lower Q3 payout.

Prefer to listen to this analysis while you multitask? Stream the companion audio here, or scroll down to read.

Reason 1: A Self-Inflicted Drop

The primary reason for the dip is simple: I have been reducing my holdings in the three major SG banks over the past year. Compared to this time last year, my portfolio now holds:

• 30% less DBS (SGX: D05)
• 60% less OCBC (SGX: O39)
• 0% UOB (SGX: U11)

In short, with bank stock prices climbing relentlessly, I reckon they are likely to offer less upside in both capital appreciation and future dividend growth. (For more details on my thesis, check out my previous posts linked below.)

With such a major haircut to these core income drivers, it’s no wonder quarterly dividends took a hit. However, because this was an intentional and fully anticipated move, there’s zero surprise — and no reason to panic.

In fact, containing the drop to just 8.6% is actually a much better outcome than I originally expected.

Reason 2: Income Replacement & Increased Payouts

It helps that after selling, I didn’t simply leave the cash sitting idle in my bank account or CPF-OA.

Instead, a portion of the sales proceeds was actively redeployed into other high-quality holdings with track records of sustainable payouts, such as Parkway Life REIT (SGX: C2PU), HRnetGroup (SGX: CHZ), and Venture Corporation (SGX: V03).

If not for the 35% CPF stock limit preventing me from recycling more of the sales proceeds (including substantial realised gains), the income gap would have narrowed even further.

Beyond the reallocation, what was most satisfying was seeing a high number of existing holdings bump up their dividend payouts compared to last year.

While dividend income wasn’t the primary thesis for every single one of these stocks, their organic payout growth added up to cushion the drop from the bank divestments.

Reason 3: Total Return Dwarfs the Dividend Shortfall

While I love receiving regular profit sharing from my holdings, I am not a pure income investor. Capital appreciation matters just as much to me, if not more.

Sensing strong demand in the semiconductor sector earlier this year, I used part of the raised capital to increase my stakes in local semiconductor manufacturers like Micro-Mechanics (SGX: 5DD) and UMS Integration (SGX: 558).

Their spectacular rally in the second quarter, coupled with strong performance across my other holdings (including the banks), pushed my YTD overall portfolio return past 20% — even after the softening market over the past fortnight.

Compared with my portfolio’s current dividend yield of 2.7%, this year’s capital gains dwarf not just this quarter’s drop, but the entire full-year dividend payout.

If cash flow ever required it, taking a small slice of profits off the table would easily bridge any difference.

Outlook: A Temporary Blip in a Stronger Year

Here’s the bonus: the quarterly drop is largely a matter of timing and allocation.

With both Micro-Mechanics and UMS Integration paying out dividends in the final quarter, my increased stakes mean a >10% YoY jump in dividend income is right around the corner for Q4.

This surge will push the full-year payout higher than last year, narrowly edging out 2024 to set a brand new All-Time High (ATH)!

Numbers: Never the Whole Story

This short-term dividend trade-off reminds me of my time as an educator, when I chose to forego a promotion to join the pioneering team of a new school.

On paper, it looked like a step backward in my career path.

In reality, stepping into unfamiliar work stretched me well beyond my comfort zone. Managing constraints and navigating uncertainty ultimately broadened my perspective and made me a far better version of myself.

The same logic applies to portfolio management.

Temporary dividend speed bumps aren’t necessarily a sign of a broken strategy – they are often the deliberate price of recalibration to prepare for the next phase of growth.

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