Every investing article, podcast, and YouTube video will tell you the same thing about dividend investing: the yields are too low to matter. Why settle for 5% when you could swing for 50% on a growth stock?
I used to think this way too. Then I ran the numbers on what actually happens when you hold a quality dividend stock for 10 years or more. The result completely changed how I think about income investing. Because the yield you see on a stock screener today is not the yield long-term investors are earning.
The number on the screen is not your yield
Most people treat dividend yield like a fixed number. You look it up, it says 5%, and you move on thinking that is all you will ever get. Three percent of a $10,000 investment is $500 a year. Hardly enough to get excited about.
But yield is not fixed. It changes based on two variables: the dividend the company pays and the price you paid for the stock. The market shows you the yield based on today’s price. It tells you nothing about what someone who bought five or ten years ago is actually earning.
This distinction matters more than almost anything else in income investing. And almost nobody talks about it.
Think of it like rental income
Here is a simple way to think about it. Imagine you buy an apartment for $200,000 and rent it out. In the first year, your tenant pays $8,000 in rent. That is a 4% return. Fine.
But rents go up. Five years later, the tenant is paying $12,000. Your return is now 6% on your original purchase price. Ten years in, it is $16,000. That is 8%. The apartment might now be worth $350,000, so a new buyer would see a 4%+ yield. But you? You are earning 8% because you got in early and held on.
Dividend investing works exactly the same way. The yield you lock in at the start is just the beginning. If you pick a company that grows its dividend consistently, your personal yield climbs every year. Eventually, it crosses into double digits.
A supermarket stock that quietly became a cash machine
Consider Sheng Siong Group, one of Singapore’s largest supermarket chains listed on the SGX. It is the kind of stock that never makes headlines. More than 88 locations across Singapore, selling rice, vegetables, canned goods, and household essentials. Nobody posts about it on social media. Nobody brags about it at dinner parties.
But the numbers tell a different story.
Consider an investor who bought Sheng Siong shares in 2012 at around 47 cents. In its first full year as a public company, Sheng Siong paid a total dividend of 2.75 cents per share. That gave the investor a starting yield of approximately 5.9%. Good, but hardly extraordinary.
Since then, the dividend has risen almost every year. It increased to 3.0 cents in 2013, 3.3 cents in 2015 and 3.7 cents in 2016. By 2021, it had reached 6.1 cents. For FY2025, Sheng Siong paid a total dividend of 7 cents per share.
Now do the maths. An investor who bought at 47 cents in 2012 and simply held on would be earning a yield on cost of 15% today. Not 3%. Not 5%. Fifteen percent of the original investment is now returned in cash every year, without the investor doing anything except holding.
Why this works
Sheng Siong did not do anything dramatic to get here. Revenue simply grew from S$578 million in 2011 to over S$1.57 billion in FY2025. Profits followed. And the dividend followed profits. People need groceries in good times and bad. Recessions, pandemics, trade wars. None of these stop Singaporeans from buying food. When a company sells something essential, its earnings become predictable. And predictable earnings are the foundation of a predictable, growing dividend.
What also helps is disciplined management. Sheng Siong’s payout ratio has consistently hovered above 70%, meaning the company returns the majority of its earnings to shareholders as dividends while retaining just enough to fund organic growth. There have been no massive acquisitions, no expensive bets on unrelated businesses, no empire building. Just steady, sensible capital allocation that prioritises shareholders.
And here is what many investors do not realize. Investing for income does not mean you have to give up capital gains. Sheng Siong’s share price has risen from around S$0.47 in 2012 to around S$3.18 today. That represents nearly 580% in capital appreciation, on top of all the dividends collected over the years.
When you pick the right dividend stock, you get the best of both worlds. A growing stream of passive income and a rising share price. The two are not mutually exclusive. In fact, they tend to go hand in hand because the same qualities that drive dividend growth, such as strong earnings, disciplined management, and a resilient business model, are the same qualities that drive long-term share price appreciation.
What if you were late to the party?
Now, you might be thinking: this only works if you bought Sheng Siong back in 2012. There is some truth to that. The earlier you invest, the more time the dividend has to grow and the greater your potential yield on cost.
But investors who came later have also benefited. Someone who bought Sheng Siong in 2019 at around S$1.10 per share would be earning a yield on cost of approximately 6.4% today. If the company continues growing its dividend, that figure could rise to 8% or more over the next five to ten years.
The key insight is that you do not need to invest at the earliest possible moment. You simply need to find quality companies with a consistent record of dividend growth, buy them at sensible prices and give them enough time.
What should you do?
1. Focus on dividend growth, not current yield. A stock yielding 3% today with a track record of raising dividends every year is far more valuable than a stock yielding 8% that could cut at any time. Look for companies with at least five to ten years of consistent dividend increases.
2. Buy businesses you understand and can hold for a decade. The magic of yield on cost only works if you hold long enough. That means owning companies with predictable revenue, conservative balance sheets, and products people need regardless of the economy.
3. Be patient. The first few years will feel slow. But once dividend growth starts compounding, the results accelerate. The difference between year five and year ten can be dramatic.
4. Do not reset the clock. Every time you sell a dividend grower to chase something flashier, you give up years of accumulated yield on cost and start over. The investors who earn double-digit yields are not smarter or luckier. They are simply more patient.
The fifth perspective
A 5% yield feels insignificant when you are starting out. But yield on cost is a snowball. It starts small, rolls slowly, and then one day you run the numbers and realize a boring supermarket stock is paying out 15% a year on someone’s original investment.
You do not need to chase high yields. You do not need to time the market. You just need to buy quality, hold with conviction, and let dividend growth do what it has always done.
The best dividend yields are not found; they are grown.
