What are stock dividends? How to invest in dividends for continuous returns

Why Are Dividend Stocks Worth Investing In

Investors often look for ways to generate a steady income stream from their holdings without constantly monitoring stock prices daily. Stocks that pay dividends periodically are an attractive option, especially during market downturns or when there is no clear trend. Besides waiting for the stock price to increase, investors also receive cash distributions from the company’s profits. This type of investment is similar to a fixed deposit but with the added opportunity for capital appreciation in the future.

What Are Dividend Stocks and What Does Dividend Mean?

Dividend stocks are shares of companies with a history of regularly distributing profits to shareholders. The dividend payout depends on how much profit the company makes in that year and the approval of the shareholders’ meeting.

For example, ABC Company announces a dividend of 1.75 baht per share, with an XD mark on July 1. If you hold 10,000 shares and keep them until that date, you will receive 17,500 baht before tax. Please note that whether you bought the stock before or just entered the market before June 30 or the day before the XD date, you are entitled to the dividend equally, but your cost basis will differ.

Dividends are paid from profits, not from the company’s capital. The company allocates profits into reinvestment and dividend distribution. If the company does not make a profit, no dividends will be paid.

Types and Methods of Dividend Payment

( By Payment Method

Cash dividends are the most common, transferred directly to your bank account. A 10% withholding tax is deducted before transfer. This method provides a clear and straightforward cash flow.

Stock dividends are less common; the company issues new shares instead of cash. This helps the company retain cash and gives investors the choice to hold or sell the shares for cash. This method increases the number of shares in circulation, but investors do not need additional capital.

) By Payment Period

Annual dividends are paid from yearly profits, announced at the fiscal year-end ###no later than March###, and require shareholder approval before actual payment, usually within the following month.

Interim dividends are special payments outside the regular schedule, often in August-September. For companies paying twice a year, approval from the board of directors and reporting to shareholders at the next meeting are required.

Key Indicators for Choosing Dividend Stocks

( Dividend Policy)

Each company has its own policy. For example, INTUCH pays 100% of the profits from its subsidiaries, while PTT pays no less than 25% of net profit after reserves.

Once you understand this policy, you can estimate how much dividend the company might pay. For instance, if INTUCH has an EPS of 3.3 baht and a 100% payout policy, it likely pays 3.3 baht per share.

Dividend Payout Ratio(

This indicator shows what percentage of the company’s profit is paid out to shareholders.

Formula: )Dividend per share ÷ EPS### × 100

Example: In 2022, INTUCH paid a dividend of 4.72 baht per share with an EPS of 3.28 baht. The payout ratio = 144%, meaning the company used retained earnings from the previous year to pay extra. PTT in 2022 paid 2 baht with an EPS of 2.64 baht. The payout ratio = 75%.

( Dividend Yield)

This indicator shows the percentage return from dividends based on your investment.

Formula: (Dividend per share ÷ Stock price) × 100

Example: INTUCH pays a dividend of 4.72 baht, with a closing price of 72.75 baht. Yield = 6.5%. If you buy at a lower price, say 50 baht, your yield would be 9.44%.

Important: The purchase cost affects the dividend yield you receive.

5 Principles for Selecting Dividend Stocks Without Blindly Relying on Dividends

1. Choose companies with strong fundamentals

Dividends come from profits, so companies capable of consistently generating profits are more trustworthy. If a company has solid fundamentals, it is more likely to pay dividends regularly without causing a decline in stock value.

( 2. Beware of too-low dividends

Dividends should be higher than the inflation rate. For example, if the average inflation is 2% per year, dividends below 2% do not preserve your money’s value because your capital continues to lose purchasing power.

) 3. Watch out for abnormally high dividends

Often, companies pay unusually high dividends in a single instance or use up all retained earnings. Such payments are unsustainable; investors might receive high dividends only once or twice, but the stock price could decline for a long period afterward.

( 4. Check for consistency

Don’t focus on just one year. Look for companies that pay dividends steadily over multiple years. If a company can pay at a reasonable rate consistently, it indicates financial stability.

) 5. Time your purchase appropriately

Your purchase cost directly impacts your return. For example, disciple A buys shares at 5 baht and receives 1 baht dividend, yielding 20%. Disciple B buys the same shares at 6 baht with the same dividend, yielding 16.6%. Managing your entry cost is crucial.

Steps to Successfully Invest in Dividend Stocks

Step 1: Open a stock trading account with a broker

Prepare these documents: a copy of your ID card, a copy of your bank account page, and the broker’s form. Often, you will need to submit a recent bank statement to request trading credit.

Tip: Register for E-Dividend service simultaneously to have dividends automatically transferred to your bank account. Approval takes 1-5 business days.

Step 2: Prepare investment funds

Once approved, transfer money into your stock account as investment capital. You can start trading immediately afterward.

Step 3: Research and monitor stocks of interest

• Do your homework: study the company’s financial performance
• Create a Watch List to track prices
• Use technical charts or fundamental valuation
• Set an appropriate entry price

Step 4: Follow news and earnings reports

Keep updated on the company’s annual profits, as this helps estimate the approximate dividend payout. Wait for official approval from the shareholders’ meeting.

Important: You must hold the stock until the XD date to be eligible for dividends.

Step 5: Receive dividends

Dividends will be credited to your account within one month after the dividend approval. A 10% tax is deducted before transfer, which can be claimed as a deduction during your annual tax filing.

Frequently Asked Questions ###FAQ###

How many days before XD do I need to buy shares to get dividends?

You can buy any days before XD, but purchasing on the XD date means you are not entitled to dividends because XD stands for “Exclude Dividend,” meaning purchases from that day do not include dividend rights.

How to see which stocks pay dividends?

Check the Dividend Payout Ratio or Dividend Yield indicators on the SET website or observe the SETHD index, which includes the top 30 high-dividend stocks. Alternatively, look at profitability; companies with high profits and high dividend policies tend to pay higher dividends.

When is the best time to buy dividend stocks?

According to the Efficient Market Hypothesis, stock prices tend to adjust after dividend announcements. Therefore, buying after dividends are announced usually means the price is already higher. For long-term investing, it’s better to buy when prices are low before good earnings are announced, to get a fair price and avoid overpaying.