Dividends: Stable income value from shareholding and proper investment procedures

Why Do Dividend-Paying Stocks Attract Many Investors?

For those seeking to generate a steady income stream from investing in the relatively stable stock market, choosing dividend-paying stocks becomes an attractive option. Not only do they provide cash returns at year-end, but they also offer the potential for capital appreciation as stock prices increase in the future. An important point is that investors become partial owners of the company. This investment approach is suitable for those interested in sustainable returns.

What Are Dividend Stocks: Meaning and How They Work

These stocks come from companies that regularly distribute a portion of their profits to shareholders within the scope of their policy. The payout amount depends on the company’s profits for that year and approval from the shareholders’ meeting.

Consider an example: If ABC announces XD with a dividend of 1.75 baht per share, and an investor holds 10,000 shares until July, they will receive 17,500 baht (before tax). The XD date is a key factor because buying shares after the XD date means the stock is Exclude Dividend, which means the right to receive that dividend is not included.

The source of dividends does not come from the company’s registered capital but from net profits generated by the company. Profits are usually divided into two parts: one retained for further investment and the other paid back to shareholders. These profits may be current annual profits, profits from special events, or accumulated profits from previous years.

Forms of Return Distribution from Dividend Stocks

Categorized by Payment Type

Cash dividends: The most common and popular method, providing straightforward cash flow returns similar to fixed deposit interest. These dividends are subject to 10% withholding tax.

Stock dividends: The company issues new common shares instead of cash. This approach helps the company retain cash. Shareholders can choose to keep additional shares or sell immediately for cash. The caveat is that the number of shares in the market increases, which may lead to a dilution (Dilute) effect and potentially lower the share price, but shareholders are not required to pay extra.

Categorized by Payment Timing

Annual dividends: Paid after the fiscal year-end, which occurs no later than March. They require approval at the shareholders’ meeting and are paid within about 1 month afterward.

Interim dividends: Paid outside the annual dividend period, often in August-September for companies that pay twice a year. Approved by the company’s board and paid within about 1 month afterward.

Key Indicators Investors Must Understand

Dividend Policy (Dividend Policy)

Each company sets its own payout framework. For example, INTUCH sets a policy to pay 100% of the profits from its subsidiaries, while PTT commits to paying no less than 25% of net profit after reserves. These policies provide a broad payout framework, but the actual rate must be approved by shareholders.

Dividend Payout Ratio (Dividend Payout Ratio)

This figure is calculated as: (Dividend per share ÷ Net profit per share) × 100

For example: In 2022, INTUCH paid a dividend of 4.72 baht per share with a profit of 3.28 baht, resulting in a payout ratio of 1.44%. This indicates the company is using accumulated profits to pay shareholders. For PTT in 2022, the dividend was 2 baht per share with a profit of 2.64 baht, resulting in a 75% payout ratio.

Dividend Yield (Dividend Yield)

Calculation: (Dividend per share ÷ Current stock price) × 100

Example: INTUCH pays 4.72 baht with a stock price of 72.75 baht, yielding 6.5%. If an investor buys at a cost of 50 baht, the yield increases to 9.44% because the dividend proportion relative to the cost is higher.

Key Points in Choosing Dividend Stocks: Common Mistakes to Avoid

1. Prioritize Fundamental Valuation Structure

Dividend returns are rooted in profits. Therefore, companies with stable long-term profit generation are more likely to sustain dividend payments and prevent the company’s or stock’s value from declining.

2. Set a Lower Limit for Returns

Investors should determine that the return rate should not be lower than the annual inflation rate. If inflation is 2%, choosing stocks with lower yields means losing purchasing power of cash.

3. Be Skeptical of Excessively High Returns

Stocks with high and consistent payout ratios are rare. Seeing abnormally high yields should raise questions: Is this a one-time payout? Is the company exhausting accumulated profits? If so, investors should be cautious, as high dividends may only occur a few times, and the stock value could gradually decline over time.

4. Check for Consistency Over Time

Analyzing payout ratios over multiple years is essential. If a company can consistently pay reasonable dividends, it indicates financial stability.

5. Consider Entry Timing

Even if dividends remain the same, the return depends on the purchase cost. For example, if A buys at 5 baht with a 1 baht dividend, the yield is 20%. If B buys at 6 baht, the yield drops to 16.6%. Therefore, timing the purchase to manage costs plays a significant role.

Steps to Buy Dividend Stocks: Step-by-Step Guide

Step 1: Register with a Securities Company

This requires copies of ID card, bank account statement, and a form from the securities agent. Often, income details are requested to set trading limits. Registering for E-Dividend simultaneously ensures dividends are automatically transferred to your bank account. This process takes 1-5 business days.

Step 2: Invest Funds into the Account

Once approved, transfer money to the stock account to use as trading capital. You can start trading immediately when good opportunities arise.

Step 3: Select and Monitor Stocks You Intend to Buy

Conduct research and pre-selected lists. Use a Watch List to track prices, study price charts, or evaluate valuation to determine a good entry price. When reaching your target price, you can purchase and hold.

Step 4: Follow Up on Management and Operations

Monitor annual profits, dividend announcements, and XD dates. From this information, you can estimate dividend payments. Wait for the shareholders’ meeting for official approval. Afterward, hold the stock until the XD date to secure dividend rights.

Step 5: Receive Dividends

Dividends are credited to your account within 1 month after approval. The amount received is subject to 10% tax and can be used for tax deductions at year-end.

Common Questions Investors Ask

Q: How many days before XD should I buy to get the dividend rights?

A: Buying any time before the XD date grants the right. When the stock goes XD (Exclude Dividend), it means buyers on that day and afterward will not receive that dividend.

Q: How do I know which stocks pay dividends?

A: Check the dividend yield (Dividend Yield) or dividend payout ratio (Dividend Payout Ratio) on market websites, or monitor the SETHD index, which includes the top 30 high-dividend stocks, or analyze the company’s profitability. Companies with high profits and high dividend policies tend to pay higher dividends.

Q: When is the best time to buy to maximize returns?

A: According to the Efficient Market Hypothesis (Efficient Market Hypothesis), stock prices usually incorporate all news. Therefore, buying after dividend announcements may lead to price increases reflecting the dividend value. To avoid buying at high prices, it’s better to buy when prices have corrected before the earnings announcement (which reflects dividend payments). This way, you can acquire stocks at a more appropriate cost.

Additional Resources

To better understand dividends in English and various investment concepts, you may want to study:

• How to find stocks for beginners
• Comparing reputable securities firms for opening accounts

Summary

Investing in dividend stocks means creating a steady income stream in a relatively stable market. Investors not only receive cash flows from dividends but also have the opportunity for capital growth as stock prices rise. This article covers the meaning of dividend stocks, payout methods, key indicators, common pitfalls, and the actual buying process. Once you understand these principles and avoid common mistakes such as stocks with high dividends but declining value, you can successfully build a dividend stock portfolio aligned with your financial goals.