How to view dividend stocks and choose dividend-paying stocks wisely

Why Invest in Dividend Stocks

Dividend stocks are an attractive investment option, especially when the market is relatively calm and not very active. The key characteristic is the ability to generate a steady cash flow from holding the stock, similar to earning interest from a fixed deposit. Additionally, there is potential for capital growth as stock prices increase in the future. Another benefit is that investors become part-owners of the company and have rights to a share of the profits.

What Are Dividend Stocks? The Role of Dividend Payments

Dividend stocks refer to shares of companies that have a policy of paying regular dividends from their annual profits. The amount paid depends on the company’s earnings and approval from the shareholders’ meeting.

For example, company ABC declares a dividend of 1.75 baht per share. If an investor holds 10,000 shares and keeps them until the ex-dividend date, they will receive a dividend of 17,500 baht (before tax). It doesn’t matter whether the investor is a long-term holder or bought additional shares right before the ex-dividend date.

It’s important to understand that dividends come from the company’s profits, not its capital. Every year, the company allocates some profits for reinvestment and returns the remaining to shareholders. The profits paid out could be net profit for the year, special profits, or accumulated profits from previous years.

Types of Dividend Payments Investors Should Know

Cash Payments

The most common method, providing immediate cash directly into the account. This method deducts 10% tax, which can be used as a tax deduction at year-end.

Stock Dividends

The company issues new shares instead of cash, helping to preserve cash flow. Shareholders can choose to hold additional shares or sell them for cash. The downside is that the number of shares in the market increases, which may dilute the share price (Dilute).

Annual Dividends

Paid from the yearly profits after the financial statements are closed. The dividend is approved at the shareholders’ meeting and paid within the following month.

Interim Dividends

Special dividends paid outside the regular annual cycle, sometimes declared mid-year. These are typically approved only by the company’s board of directors.

How to Read Stock Dividends: Key Indicators to Understand

When choosing dividend stocks, it’s essential to understand certain terms for analysis and comparison between companies.

Dividend Policy (Dividend Policy)

Each company has its own policy. For example, INTUCH( (Intouch Holdings)) pays 100% of dividends from subsidiaries, while PTT( (PTT Public Company Limited)) pays no less than 25% of net profit after reserves. These policies set broad guidelines, but the actual payout ratio must be approved by shareholders.

Dividend Payout Ratio (Dividend Payout Ratio)

Calculated as (Dividends per share ÷ Net profit per share) × 100. This shows what portion of the company’s profit is paid to shareholders.

Example: In 2022, INTUCH paid a dividend of 4.72 baht per share, with a net profit of 3.28 baht, resulting in a payout ratio of 144% (meaning retained earnings are being paid out). PTT paid 2 baht from a net profit of 2.64 baht, with a ratio of 75%.

Dividend Yield (Dividend Yield)

Calculated as (Dividends per share ÷ Share price) × 100, indicating what percentage of the purchase price investors get back as dividends.

Example: INTUCH pays 4.72 baht, with a closing price of 72.75 baht, resulting in a 6.5% yield. If purchased at 50 baht, the yield would be 9.44%. If bought at 80 baht, it drops to 5.9%.

5 Criteria to Check When Buying Dividend Stocks

Investing in dividend stocks requires caution. Choosing poorly may result in high dividends only a few times, while holding stocks that keep losing value.

1. Choose companies with strong fundamentals

Dividends come from profits, so select companies that can consistently generate profits to ensure continuous dividend payments without devaluing the stock or the business.

2. Check that the payout ratio isn’t too low

Aim for a payout ratio at least equal to or higher than inflation, around 2% annually, to preserve investors’ money’s value.

3. Beware of abnormally high payout ratios

High and consistent dividends are rare. If a stock pays very high dividends, verify whether it’s a one-time event or if accumulated profits are being paid out fully. These are warning signs that such payments may not be sustainable long-term.

4. Review dividend payment history

Look at several years of dividend payments, not just one year. Companies that pay reasonable and consistent dividends reflect financial stability.

5. Manage purchase costs appropriately

Dividend yield depends on purchase price. Investor A buys at 5 baht and receives 1 baht dividend, yielding 20%. Investor B buys at 6 baht with the same dividend, yielding 16.6%. Timing entries when prices are low is therefore important.

Steps to Buy Dividend Stocks from Start to Receiving Dividends

1. Open an account with a broker

Prepare a copy of your ID card, bank book, and documents from the broker. To facilitate dividend receipt, register for E-Dividend service so dividends are automatically transferred to your account. It takes about 1-5 business days.

2. Transfer funds into your account

Once approved, transfer investment funds into your account as trading capital.

3. Study and select dividend stocks

Analyze stocks based on the criteria above, use a Watch List to monitor prices, or employ technical analysis to find suitable entry points.

4. Follow operational news and dividend announcements

Track annual earnings reports to estimate dividend payments. After profitability is announced, wait for the shareholders’ meeting for approval. From then on, hold the stock until the XD date to qualify for dividends.

5. Receive dividends

Within one month after approval, dividends are transferred to your E-Dividend registered account, with 10% tax deducted.

Frequently Asked Questions

How many days before the XD date should I buy stocks?

Any day except the XD day, because XD means Exclude Dividend (not including dividends). Buying on that day will not entitle you to dividends.

Where can I check dividend stocks?

Observe the payout ratio (Payout Ratio) or dividend yield (Dividend Yield) on set.or.th or check the SETHD index, which includes the top 30 high-dividend stocks.

When is the best time to buy for the highest returns?

The market is efficient, and stock prices move according to announced news. Buying after good earnings reports might be buying at a high. For long-term investing, it’s better to buy when prices are low before earnings are announced to get a better cost basis.

Summary

Investing in dividend stocks is suitable for relatively stable markets, providing steady cash flow and long-term growth opportunities. To correctly evaluate dividend stocks, look at payout ratios, dividend yield, and payment history over several years. Successful selection involves choosing companies with strong fundamentals, reasonable payout ratios, consistent payments, and managing purchase costs to maximize returns. These are key to avoiding dividend traps and building sustainable investments.