One of the most persistent narratives from this year's World Cup involves Cape Verde, a small island nation with a population of only half a million that performed exceptionally well on the world stage.

We observe analogous scenarios in the financial markets: scale is not the sole determinant of success.

Reliable passive income is not derived from a headline dividend figure alone; it is contingent upon the underlying foundation supporting it.

A distribution can be sustained for years using borrowed funds or a diminishing cash reserve.

Alternatively, it can be paid from free cash flow, supported by cash on the company's balance sheet.

Sustained payments are only achievable through the latter method.

Based on this principle, three Singaporean companies not included in the STI warrant closer examination.

HRnetGroup

HRnetGroup operates recruitment and staffing services across various Asian cities under brands such as HRnetOne, PeopleSearch, and RecruitFirst.

Its Flexible Staffing division, which supplies contract and temporary workers, generated 89.7% of the group's revenue for 2025.

The Professional Recruitment segment handles permanent placements and executive search.

This segment contributed 9.6% of total revenue and 45.2% of gross profit.

The company increased its annual dividend by 5% year-on-year to S$0.042 for 2025, up from S$0.040 in 2024.

The sustainability of this increase is rooted in its source.

Over the same period, HRnet's free cash flow grew by 5.3% to S$52 million.

The dividend growth rate closely matched the rate of cash generation.

Investors should be cautious when a company's dividend growth outpaces its cash generation, as this essentially borrows from future capacity.

HRnetGroup, however, is not in that position.

Profit increased by 15% to S$51.2 million, though a significant portion was driven by a S$6.9 million rise in other income, primarily from fair value gains on financial assets and gold.

Such fair value gains are non-cash items and do not fund dividends; free cash flow does, and it increased independently of these gains.

The dividend is backed by S$262.9 million in cash with no debt.

This net cash position exceeds five times the annual free cash flow, meaning HRnetGroup could fund multiple years of dividends from its balance sheet alone, even without generating further business income.

The sustainability of its dividend ultimately depends on hiring volumes rather than one-off gains.

The average number of monthly contractors increased by 5.6% to 16,421, and placement volumes rose by 4.6% to 4,766.

Management is shifting the Professional Recruitment focus towards senior executive search and developing recurring revenue via Octomate, a workforce-management platform gaining adoption among government and multinational clients.

Old Chang Kee

Old Chang Kee is a household name in Singapore, renowned for its signature curry puffs and other snack foods commonly found at MRT stations and shopping malls.

The company sells its products through retail outlets in high-traffic locations and a non-retail channel encompassing delivery, catering, and business-to-business supply.

For the fiscal year ended 31 March 2026 (FY2026), the total dividend was S$0.03 per share, up from S$0.02.

A closer look reveals the composition: an interim dividend of S$0.01 and a proposed final ordinary dividend of S$0.01, making the recurring ordinary payout of S$0.02 flat compared to FY2025.

The increase came entirely from a S$0.01 special dividend.

This distinction is crucial for income investors: the ordinary S$0.02 is the recurring figure, while the special dividend is a one-off, indicating a balance sheet with capacity for an extra distribution rather than a step-up in the recurring payout.

The recurring payout appears well-supported.

Free cash flow was S$21 million, down from S$23.2 million due to softer operating cash flow and higher capital expenditure.

Despite this decline, free cash flow remained more than double the net profit of S$9.6 million.

Depreciation is a non-cash expense that reduces reported profit without affecting actual cash collection, which is why the 15.8% profit decline overstates the pressure on the dividend.

The dividend is backed by S$61.6 million in cash and deposits against only S$1.4 million of debt.

Cost pressures are the primary concern, with higher staff costs impacting the bottom line and a S$0.6 million reduction in interest income due to lower fixed deposit rates.

Management has highlighted ongoing inflationary pressures and manpower shortages as continuing headwinds.

QAF

QAF Limited operates in bakery, distribution, and warehousing across Singapore, Malaysia, the Philippines, and Australia, owning approximately 40 brands including Gardenia and Bonjour.

The company maintained its total dividend at S$0.05 for 2025, comprising a proposed final dividend of S$0.04 and an S$0.01 interim paid earlier, unchanged from the prior year.

Maintaining the payout was a prudent decision, and the rationale is more significant than the figure itself.

Net profit attributable to owners rose 15% to S$39.8 million, giving management justification to raise the dividend, yet they chose not to.

The profit increase was driven primarily by QAF's share of profits from its Malaysian joint venture, Gardenia Bakeries (KL), which surged to S$15.4 million from S$4.7 million.

This figure included a S$8.7 million non-cash impairment reversal, which boosts reported profit but involves no actual cash.

Meanwhile, free cash flow declined by 23% to S$35.4 million due to higher working capital requirements.

Therefore, the dividend was held steady amidst rising profit and falling cash—a decision reflecting honest assessment of the financials by management.

The payout remains secure based on the balance sheet, with the company ending the year with S$214.1 million in cash against S$4.8 million of debt (excluding lease liabilities), and a strengthened net cash position.

Working capital fluctuations are often timing-related rather than indicative of deterioration, though reversal is not guaranteed.

Revenue saw a marginal decrease to S$633.6 million, but would have shown a 1% increase on a constant currency basis.

Management anticipates continued uncertainty and elevated downside risks for 2026.

The Foundation of Reliable Income

Free cash flow is the essential source for dividend payments.

The stability of a dividend is directly tied to the stability of the cash funding it.

Each of these three companies illustrates a different aspect of this principle.

HRnetGroup increased its dividend in line with its free cash flow growth, ensuring the raise was fully funded.

Old Chang Kee maintained its ordinary dividend while generating free cash flow more than double its net profit, with a special dividend funded by a cash-rich balance sheet.

QAF prudently held its payout steady instead of raising it based on profit that did not translate into cash.

All three companies maintain substantial net cash positions relative to their dividend payouts.