It's time to understand dividend stocks and how to start investing

What Are Dividend Stocks? Understand Clearly

Dividend stocks are shares of companies that have a policy of regularly paying profits to shareholders each year. These payments come from the company’s actual profits, not from capital. Therefore, when a company makes a profit, management will allocate a portion for reinvestment and return the remaining to shareholders as dividends.

For example, if ABC announces a dividend of 1.75 baht per share and you hold 10,000 shares, you will receive 17,500 baht (before tax), whether you held the shares previously or bought new ones the day before XD.

Important to know: Companies that do not make a profit at all cannot pay dividends because dividends must come from profits, not from the company’s capital.

How Are Dividends Paid Out?

Different Types of Dividend Payments

Cash dividends - The most common and popular method. Investors receive a steady cash flow similar to interest from a bank deposit. This dividend will be taxed at 10%.

Stock dividends - The company uses profits to issue new common shares instead of cash payments. This method avoids cash outflow from the company, but the number of shares in the market will increase (Dilute). Investors do not need to pay extra to receive stock dividends.

Payment Periods

Annual dividends - Result from the company’s operations for the fiscal year ending in March each year. Once approved by shareholders, the actual payment is made within about 1 month.

Interim dividends - Some companies pay additional dividends outside of the annual dividend, often around August-September, especially for companies that pay twice a year.

Economic Terms to Know When Choosing Dividend Stocks

Dividend Policy (Dividend Payment Policy)

Each company has its own dividend payout framework. For example, INTUCH has a policy to pay 100% of dividends received from its subsidiaries, while PTT pays at least 25% of net profit. Understanding this helps you anticipate dividend trends in the coming year.

Dividend Payout Ratio (Dividend Payout Ratio)

The proportion of actual dividends paid out relative to net profit per share. Calculated as: (Dividends per share ÷ Net profit per share) × 100

Example: In 2022, INTUCH paid a dividend of 4.72 baht per share, with net profit per share at 3.28 baht. The payout ratio is 144% (using retained earnings to pay dividends). PTT paid a dividend of 2 baht when net profit per share was 2.64 baht, resulting in a payout ratio of 75%, which is a sustainable rate for future dividends.

Dividend Yield (Dividend Return)

The ratio of dividends received relative to the purchase price of the stock. Calculated as: (Dividends per share ÷ Purchase price) × 100

Example: INTUCH pays a dividend of 4.72 baht, with a closing price of 72.75 baht. The dividend yield is 6.5%. If you buy at 50 baht, the yield increases to 9.44% because the cost basis is lower.

Strategies for Selecting Dividend Stocks Without Falling into Traps

1. Choose companies that are genuinely profitable in the long term

Since dividends come from profits, select companies with strong business fundamentals that can consistently generate profits. This ensures ongoing dividend payments and prevents stock value from collapsing.

2. The dividend return should be higher than inflation

The payout rate should be about 2% above the inflation rate to prevent your investment value from eroding due to economic factors.

3. Avoid unbelievably high dividend rates

Stocks with unusually high and consistent dividend payout ratios are rare. When encountered, verify whether the company is using accumulated profits or artificial means. Often, investors receive high dividends only a few times but must endure holding stocks whose value declines over many years.

4. Review dividend payment history

Look back over several years to see if the company has paid dividends consistently and steadily. Increases or decreases can indicate financial stability.

5. Time your purchase to lower your cost basis

Investor A buys shares at 5 baht with a 1 baht dividend, yielding 20%. Investor B buys at 6 baht with the same dividend, yielding only 16.6%. Good timing can increase your dividend yield.

How to Buy Dividend Stocks Step-by-Step

Step 1: Open a stock trading account with a broker

Prepare a copy of your ID card, bank account statement, and documents to open an account. Some brokers may require a recent bank statement. Important: Register for E-Dividend service simultaneously to have dividends automatically transferred to your bank account. Account approval takes 1-5 business days.

Step 2: Transfer investment funds or collateral into your account

Once approved, transfer funds as collateral or investment capital. You can start trading immediately once you find good dividend stocks at appropriate prices.

Step 3: Select dividend stocks and monitor prices

Avoid random buying. Do your homework by studying the stocks of interest. Use a Watch List to track price movements, technical charts, or fundamental analysis (Fundamental Analysis) to determine a suitable entry price.

Step 4: Follow company performance and dividend news

Review annual profits to get a preliminary idea of dividend payments. Wait for shareholder meetings for confirmation. Most importantly, hold the stock until the XD date to qualify for dividends.

Step 5: Receive dividends via E-Dividend account

Dividends will be transferred to your registered bank account within 1 month after the dividend approval. The amount will already be taxed at 10%, which can be deducted from your annual tax return.

Frequently Asked Questions

How many days before XD should I buy? You can buy any day before XD. However, buying on the XD day means you are not entitled to dividends because XD = Exclude Dividend (not including dividends). Buying after that date will not give you dividends.

How to check dividend stocks? Check the dividend payout ratio (Dividend Payout Ratio) or dividend yield (Dividend Yield) on set.or.th or via the SETHD index, which includes the top 30 high-dividend stocks. Also, stocks with high profits and high dividend policies tend to pay higher dividends.

When is the best time to buy for good returns? According to market efficiency, stock prices usually absorb dividend announcement news already. Buying after the announcement means the price has adjusted to reflect the dividend value. For long-term investing, timing your purchase before earnings announcements, during a price correction, can secure better prices and avoid buying at high prices.