Stock Dividends: The Complete Guide for Executive Investors

Learning from Dividends: Meaning and Basic Mechanics

In an era where the stock market is stagnant, finding a stable income source is crucial for investors. Dividend stocks are an excellent option because they have two key features: first, they provide benefits in the form of a steady cash inflow, similar to interest from fixed deposits; and second, they still offer the opportunity for the value of the investment to grow in the future.

What is a dividend? It is a share of the company’s profits paid regularly to shareholders. Each year, the company decides what portion of its profits to retain for ongoing development and what remains to be distributed to shareholders as dividends.

Dividends are not paid from the company’s initial capital but from profits generated from business operations. Sometimes, they come from current year’s profits or accumulated profits from previous years. Therefore, if the company cannot generate profits, it cannot pay dividends.

Calculation example: Suppose ABC stock announces a dividend of 1.75 baht per share, and you hold 10,000 shares. If you are still a shareholder on the XD date, you will receive 17,500 baht (before tax).

Various Dividend Payment Methods

Dividend payments do not always have to be in cash. Companies have many options to deliver value to shareholders.

Cash is the common choice: straightforward cash payments. Investors receive cash that can be used immediately. This amount is subject to a 10% withholding tax.

New shares as an alternative: instead of paying cash, the company issues new shares to shareholders. This allows the company to retain cash. Shareholders can choose to hold additional shares or sell them. The downside is that this dilutes each shareholder’s ownership percentage (dilution) due to the issuance of additional shares.

Frequency matters: Annual dividends are the most common, announced after the fiscal year-end (usually in March), and paid after shareholders approve at the meeting. Interim dividends can occur mid-year (generally in August-September).

Key Indicators for Evaluating Dividends: Terms to Understand

To select dividend stocks wisely, you need to understand these three concepts:

Dividend Policy (Dividend Policy): Each company has its approach to managing dividends. For example, INTUCH commits to paying 100% of dividends received from its subsidiaries, while PTT pays at least 25% of net profits remaining. These policies provide a basic understanding of what to expect.

Payout Ratio (Payout Ratio): The formula is (dividends per share / net profit per share) × 100. This figure indicates what portion of the company’s profits is distributed to shareholders.

Example: INTUCH in 2022 paid 4.72 baht per share when profit was 3.28 baht, resulting in a payout ratio of 144% (meaning it used retained earnings).

PTT in 2022 paid 2 baht when profit was 2.64 baht, with a payout ratio of 76%.

Dividend Yield (Dividend Yield): This is the return relative to the purchase price. The formula is (dividends per share / stock price) × 100.

Example: INTUCH pays 4.72 baht, closing at 72.75 baht = a yield of 6.5%. If you buy at 50 baht, your return is 9.44% — this difference depends on your cost basis.

Dividend Selection Process: Avoid Common Traps

###Avoid falling victim: Five common issues

Problem 1 - One-time high yields: Stocks with unbelievable high yields often have underlying issues. A one-time high dividend or dividends paid from exhausted retained earnings. These stocks promise high returns only once, after which their value declines steadily.

Problem 2 - Irregular dividend history: Review the company’s 5-10 year dividend history. If payments fluctuate significantly or there are years with no dividends, it’s a warning sign. Stable companies tend to have consistent dividend patterns.

Problem 3 - Too low figures: Dividends below the inflation rate (around 2% per year) mean you are losing purchasing power.

Problem 4 - Dividend cuts: If a company has paid dividends for a long time and suddenly stops, it may indicate financial trouble.

Problem 5 - Weak fundamentals: Before buying, check if the company has strong profitability. Companies with eroding fundamentals cannot pay dividends consistently.

###Selection Strategies

Must study: The company should have a clear profit record and a comprehensive dividend history.

Reasonable payout ratio: Aim for 3-7%. Higher yields may indicate higher risk.

Consistency: Choose companies with a high dividend payment history without interruptions or jumps.

Timing: Evaluate stock prices normally to avoid falling into the trap of overpaying. Lower prices increase dividend yield (%).

Actual Investment Steps: From Account to Cash Dividends

Step 1 - Open an account: Contact a broker and register for E-Dividend service simultaneously to ensure dividends are automatically transferred to your bank account. Approval takes 1-5 business days.

Step 2 - Deposit funds: Once your account is approved, transfer your investment capital.

Step 3 - Select and monitor: Identify dividend stocks to watch, track prices, use research or technical analysis. When you find a good price, buy.

Step 4 - Stay informed: Check company results, shareholder meeting dates, and XD dates. It’s important to hold the stock until the dividend entitlement date (XD) to receive the dividend.

Step 5 - Receive cash: Dividends will be transferred to your account within a month. Taxes of 10% are deducted, which can be claimed as a tax deduction.

Frequently Asked Questions

When should I buy? Buying before any XD date is advisable. Buying on the XD date means you are not entitled to the dividend (XD = Ex-dividend).

How to know if a stock pays dividends? Check the dividend payout ratio or dividend yield on set.or.th. The SETHD index also includes the top 30 high-dividend stocks. Alternatively, review the company’s profitability.

When is the best time to buy? Due to market performance, prices often rise when dividends are announced. Therefore, buy when the stock price dips before the announcement, not after.

Summary

Dividend stocks are a preservation method for investors seeking regular cash flow and capital growth simultaneously. When choosing, select companies with strong fundamentals, consistent payout ratios, and a stable history. Avoid the trap of excessively high dividends, and remember that the right timing of purchase can significantly impact your dividend returns (%).