How are dividends calculated? The smart process of selecting and purchasing stocks based on dividends

Why Focus on Dividends

In a quiet market where prices don’t move much, investing in dividend-paying stocks becomes an attractive option for those seeking steady income. It’s like a fixed deposit but with the potential to increase in value if the stock price rises. Most importantly, you become a partial owner of a real business.

What Are Dividends Really?

This type of stock comes from companies with a policy of regularly distributing profits to shareholders, rather than retaining all earnings for expansion only.

The profits paid out are actual cash profits, not capital. This means if the company isn’t profitable, there are no dividends. The company divides its profit into two parts: the first is reinvested into the business, and the remaining is returned to shareholders.

For example, if ABC Company announces a dividend of 1.75 baht per share, with the ex-dividend date on July 1st, and you hold 10,000 shares until today, you will receive 17,500 baht (before tax). Whether you bought the shares before this month or on June 30th, you have the same entitlement, but your cost basis will differ based on your purchase price.

How Are Dividends Paid?

Different Payment Methods ###Dividend Payment Methods###

Cash dividends are the most common. You receive actual cash credited to your account, similar to interest from a savings account. A 10% withholding tax applies.

Stock dividends involve the company issuing new shares instead of cash. This helps the company retain cash, but the total number of shares in the market increases, which can dilute the share price. The advantage is you don’t need to spend extra money to acquire more shares.

( Different Payment Timing )

Annual dividends are calculated based on the company’s profit for the entire year. Announcements usually occur after the fiscal year-end, no later than March. After that, shareholder approval is needed, and dividends are paid within the following month.

Interim dividends are paid by profitable companies starting mid-year, especially in August-September, often as a policy of paying twice a year.

Key Figures to Understand

Dividend Policy (Dividend Policy)

Each company has its own rules. For example, INTUCH aims to pay 100% of dividends received from subsidiaries, while PTT sets a minimum of 25% of net profit. This reflects the company’s intention regarding profit sharing, but actual payments require shareholder approval.

( Dividend Payout Ratio )Dividend Payout Ratio(

This figure shows how much of the profit is paid out as dividends, calculated as )dividends per share ÷ net profit per share### × 100.

For example, in 2022, INTUCH paid 4.72 baht per share but had a profit of only 3.28 baht per share, meaning a payout ratio of 144% (using accumulated profits for payout). Meanwhile, PTT paid 2 baht from a profit of 2.64 baht per share, resulting in a 75% payout ratio.

( Dividend Yield )Dividend Yield###

This indicates what percentage of your investment you receive as dividends = ###dividends per share ÷ purchase price### × 100.

If INTUCH pays 4.72 baht and the market price is 72.75 baht, the yield is 6.5%. If you buy at 50 baht, your yield increases to 9.44%.

How to Choose Dividend Stocks Without Losing Out

( 1. Check the company’s profitability

Dividends come from profits. If the company isn’t profitable, dividends will cease. Choose financially strong companies with long-term profit-making ability. This protects you from investing in unstable stocks.

) 2. The dividend rate should be higher than the inflation rate

If the average inflation is 2% per year, your dividend yield should be at least this high to prevent your money from losing value.

3. Beware of abnormally high dividends

If a stock pays unusually high dividends consistently, check whether they are paid from genuine profits or accumulated profits ###which might run out someday###. Often, investors surprised by high dividends buy in and receive good payouts only a few times, but then hold stocks that decline year after year.

4. Consistent dividend-paying stocks are better

Don’t just look at one year. Review how many years the company has paid dividends and how consistent they are. Consistent payments indicate strong financial health.

5. Buy when prices drop

At the same dividend rate, buying at a lower price yields a higher return. If A buys at 5 baht and gets 1 baht dividend, that’s a 20% yield. If B buys at 6 baht with the same dividend, the yield is only 16.6%. Timing is key.

Actual Steps to Buy Dividend Stocks

( Step 1: Open an account with a broker

Prepare documents: a copy of your ID card, a copy of your bank account page, a broker’s form, and possibly a recent bank statement.

Don’t forget to register for E-Dividend service so dividends are automatically transferred to your bank account when paid.

This process takes 1-5 business days.

) Step 2: Transfer funds into your account

Once approved, transfer money to your stock account. This will serve as collateral and trading margin. You can start buying immediately if you find a dividend stock at a suitable price.

Step 3: Study and select stocks

Do your homework: monitor dividend stock prices via Watch List, use technical charts to identify entry points, or perform fundamental analysis (Fundamental Analysis) to find target prices. When the price reaches your target, place an order.

Step 4: Track performance and ex-dividend date

Annual profits give a rough idea of dividend payouts. Wait for the shareholder meeting to approve the dividend.

Important: You must hold the stock until the ex-dividend date to be eligible for dividends (XD = Exclude Dividend, meaning buying from today excludes the right to this dividend).

Step 5: Receive dividends

Within about a month after approval, dividends will be automatically credited to your bank account. 10% tax has already been deducted, but this amount can be used for tax deduction at year-end.

Common Questions

Q: How many days before the ex-dividend date should I buy?
Anytime before the ex-dividend date. But if you buy on or after the ex-dividend date, you won’t be entitled to the upcoming dividend.

Q: How do I know which stocks are dividend stocks?
Check the Dividend Payout Ratio or Dividend Yield on set.or.th or look at the SETHD index, which includes the top 30 high-dividend stocks.

Q: When is the best time to buy dividend stocks for maximum returns?
According to market efficiency theory, stock prices already reflect available information. Once dividends are announced, stock prices tend to rise to reflect the dividend value. Therefore, it’s better to buy when prices decline before the earnings announcement which reflects dividend payouts.

Summary

Investing in dividend stocks is a good strategy in a stagnant market. It helps generate steady income from holding shares and offers long-term capital appreciation opportunities. Everything explained here should be known to you now, including how to avoid high-dividend traps where stocks pay high dividends temporarily but the share price keeps falling. This understanding will help you choose the right timing to buy and invest in dividends, increasing your chances of successful investing.