Understanding Dividend Stock Investment: A Practical Guide for Thai Investors

If you are looking for a way to generate a steady income stream from the stock market during periods of limited market movement, investing in dividend stocks may be the answer you are seeking. It also offers the opportunity for capital appreciation from rising stock prices, as well as owning a part of the company through this investment process.

Restoring Elegance to Your Money: Why Are Dividend Stocks Important

Dividend stocks are shares from companies that have a policy of regularly paying a portion of their profits to shareholders. These dividend payments depend on the company’s earnings and are approved by the shareholders’ meeting.

For example, if ABC Company announces a dividend of 1.75 baht per share and you hold 10,000 shares, you will receive a total dividend of 17,500 baht (before tax). You must hold the shares until the ex-dividend date (Exclude Dividend) to be eligible to receive this payment.

What you need to remember is that dividends come from the company’s profits, not from capital. Each year, companies divide profits between reinvestment and returning value to shareholders.

Various Dividend Payment Methods Beyond Cash

First method: Cash dividends

The most common way, where the company transfers money directly to shareholders’ bank accounts. The dividend is subject to 10% tax but can be combined with other income to reduce annual tax.

Second method: Stock dividends

The company issues new shares instead of cash. This helps the company retain cash, but the number of shares in the market increases, which may lead to a decrease in share price.

By timing

Annual dividends are paid from the company’s profits within that year, announced at the shareholders’ meeting in March. Interim dividends are additional payments during the year, approved by the company’s board of directors.

Key Thai Terms Investors Must Know

Dividend Policy (Dividend Policy)

Each company has its own payout framework. For example, INTUCH has a policy of paying 100% of the profits from its subsidiaries as dividends, while PTT pays no less than 25% of net profit. These policies allow investors to initially estimate dividend payments.

Dividend Payout Ratio (Dividend Payout Ratio)

The percentage of net profit paid out as dividends.

Formula: (Dividend per share ÷ Net profit per share) × 100

For example, in 2022, INTUCH paid a dividend of 4.72 baht per share, with net profit of only 3.28 baht, indicating the company used retained earnings to pay extra. PTT paid 2 baht from a profit of 2.64 baht, resulting in a 75% payout ratio.

Dividend Yield (Dividend Yield)

The rate of return you get relative to your investment.

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

For example, if INTUCH pays a dividend of 4.72 baht and the closing price is 72.75 baht, the dividend yield is 6.5%. If you buy at 50 baht, your yield would be 9.44%. The cost basis is very important in calculating actual returns.

Frequently Asked Questions: Clarifications Before Investing

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

You can buy shares any days before the XD date. However, once the ex-dividend mark (Exclude Dividend) appears, those who buy on that day will not receive the dividend.

How to find dividend stocks?

Check the Dividend Yield or Payout Ratio on the set.or.th website or observe the SETHD index, which includes the top 30 high-dividend stocks. Also, assess the company’s profitability; high profits and a high dividend policy tend to indicate higher payouts.

When is the best time to buy dividend stocks?

According to market efficiency theory, stock prices generally absorb news. After dividend announcements, prices often adjust upward. A good strategy is to buy when the price pulls back before the earnings announcement to avoid buying just because of the dividend and being misled.

5 Smart Strategies for Choosing Dividend Stocks to Avoid Traps

1. Companies with strong fundamentals

Dividends come from profits, so choose companies with solid fundamentals and consistent profitability. This guarantees regular dividends.

2. Returns must beat inflation

If inflation averages 2% per year, choosing stocks with lower dividends means losing purchasing power. Ensure dividends at least compensate for inflation.

3. Beware of abnormally high dividends

Stocks with very high and consistently paid dividends are rare. If encountered, investigate whether it’s a one-time payout or using up accumulated profits. Such stocks may not pay dividends for long; you might get high dividends only a few times, but the stock price could decline over many years.

4. Choose companies with consistent payouts

Review the past 3-5 years. If the company pays steadily, it indicates financial stability.

5. Timing your entry wisely

The lower the cost basis, the higher the return. For example, A buys at 5 baht with a 1 baht dividend = 20% yield; B buys at 6 baht with a 1 baht dividend = 16.6%. Same stock, different entry points.

5 Steps to Apply and Buy Dividend Stocks

Step 1: Open an account with a broker

Prepare a copy of your ID card, bank account statement, and the broker’s application form. Specially, apply for E-Dividend to have dividends automatically transferred to your bank account. Approval takes 1-5 days.

Step 2: Transfer funds into the account

Once approved, transfer funds for trading and collateral. You can start trading immediately.

Step 3: Do your homework and screen stocks

Research the dividend stocks you are interested in. Use Watch List, technical charts, or fundamental valuation to select good entry points.

Step 4: Follow news on XD and performance

Read annual profit reports, forecast dividends from performance, wait for shareholders’ approval, and hold until the XD date to be eligible for dividends.

Step 5: Receive dividends in your bank account

Within a month after payment, dividends will be transferred to your account (minus 10% tax), which can be deducted for tax relief.

Summary: Invest in Dividend Stocks Wisely

Investing in dividend stocks is a way to create a balanced cash flow in a limited market. It does not interfere with long-term gains from rising stock prices. But remember, the real risk in dividend investing lies in not being cautious. By choosing companies with strong fundamentals, checking their payout ratios, monitoring payment history, and timing your entry at the right price, you can succeed in dividend stock investing.