Dividend Stocks: Why True Investors Choose Them and How to Invest Without Missing Out

Dividends are the profits that a company decides to return to shareholders. This type of investment attracts many investors because it provides a steady return, similar to a fixed deposit at a bank, but also offers the potential for stock prices to increase further. Additionally, it makes you a part-owner or participant in the business. In fact, what are dividend stocks and how to invest in them are common questions among beginner investors.

Dividend Stocks: The True Meaning You Need to Know

Dividend stocks are not special; they are common stocks of a company with a policy of paying dividends from net profits. Every year, the company announces dividend payments at a specified rate, depending on how much profit the company made that year and whether the shareholders’ meeting approves the payout.

For example, ABC Company announces an XD (ex-dividend date) on July 1st and pays a dividend rate of 1.75 baht per share. If you hold 10,000 shares and cross the XD date as scheduled, you will receive 17,500 baht (before tax). Importantly: you do not need to own the stock before or just bought it; if you are the owner on the XD date, you are entitled to the full dividend. However, the cost basis for each investor will differ.

The key point is: dividends come from profits, not from the company’s capital. Every year, the company distributes part of its profits—some retained for further investment, some returned to shareholders. These profits may be from the current year, special profits, or accumulated profits from previous years. Therefore, if the company has no profit, there will be no dividends to receive.

Dividends Come in Various Forms and Payment Methods

###What are the types of dividend payments?

1. Cash dividends - The most common method. Investors receive money transferred directly into their bank accounts, with 10% tax already deducted.

2. Stock dividends - The company issues new shares as dividends. Investors can choose to hold the shares or sell them for cash. This method helps the company retain cash but increases the number of shares in the market (Dilute).

###When are dividends paid?

1. Annual dividends - Paid from yearly profits. Announced after the fiscal year-end, usually by March, with actual payment about a month after approval.

2. Interim dividends - Special dividends paid outside the regular annual cycle, often in August-September, or in companies that pay multiple times a year.

Calculation Formula: Understanding Dividend Figures

Investors should familiarize themselves with these terms:

1. Dividend Policy (Dividend Policy)

Each company has a payout framework. For example, INTUCH pays out 100% (of dividends from subsidiaries), while PTT pays at least 25% of net profit. This policy indicates the company’s long-term decision-making approach.

2. Dividend Payout Ratio (Dividend Payout Ratio)

Formula: (Dividend per share ÷ Earnings per share) × 100

Example: In 2022, INTUCH paid 4.72 baht per share, with earnings per share of only 3.28 baht, resulting in a payout ratio of 144% (using accumulated profits for payout).

Another example: PTT paid 2 baht in 2022, with earnings per share of 2.64 baht, resulting in a payout ratio of 75% (balanced payout).

3. Dividend Yield (Dividend Yield)

Formula: (Dividend per share ÷ Current stock price) × 100

Example: In 2022, INTUCH paid 4.72 baht, with a closing price of 72.75 baht, yielding 6.5%.

If you buy at 50 baht, the yield becomes 9.44% (lower cost = better return).

If you buy at a higher price, the yield decreases. This highlights why timing your purchase is important.

5 Key Checks Before Buying Dividend Stocks

1. Is this stock fundamentally strong?

Dividends come from profits. If the company is weak, profits decline, and dividends decrease accordingly. Check the company’s long-term profitability, not just this year’s.

2. Is this dividend reasonable?

Dividends should be higher than inflation (by about 2% or more); otherwise, your real wealth gradually diminishes.

3. Beware of “Pump and Dump” high-dividend stocks

Stocks paying 20-30% dividends are real, but often they pay once or twice and then stop, or pay from exhausted accumulated profits. The company may have issues or structural changes. The result: you get a few good dividends but hold the stock at a loss for a long time.

4. Check if dividends are consistent

Don’t look at just one year; review 3-5 years. Companies that pay steadily indicate stable profits and a solid financial position.

5. Choose the right timing to buy

The same stock bought at different prices yields different returns. The lower the purchase price, the higher the yield. For example, someone buying at 5 baht with 1 baht dividend yields 20%, while someone buying at 6 baht with the same dividend yields 16.6%. The purchase price at this point is final.

Actual Steps to Buy Dividend Stocks

Step 1: Open a stock trading account

Prepare documents: ID card copy, bank account book page, and broker’s form.

Tip: Register for E-Dividend service simultaneously to have dividends automatically transferred to your bank account.

Time required: 1-5 business days.

Step 2: Deposit funds into the account

Once approved, transfer money as collateral or trading funds. The faster, the better—there may be good stocks waiting for you.

Step 3: Do your homework and select stocks

It’s not just a one-day decision. Research prices, analyze whether the price is attractive, use charts or fundamental valuation. When the price hits your target, buy and hold.

Step 4: Follow news on XD and dividends

Estimate how much dividend will be paid this year based on profits. Wait for the shareholders’ meeting. Then, hold the stock until the XD date to qualify for dividends.

Step 5: Wait for the money

About a month after approval, the dividend (after 10% tax deduction) will be credited to your registered E-Dividend bank account.

Frequently Asked Questions

Q: How many days before XD should I buy?

A: Any time before is fine, but must buy before the XD date. On the XD day, buying does not entitle you to dividends (XD = Exclude Dividend).

Q: How to check if a stock pays dividends?

A: Look at the payout ratio (Payout Ratio) or dividend yield shown by your broker, or check the SETHD index that includes 30 high-dividend stocks, or review the company’s profits and dividend policy. High profits + high payout policy = good target.

Q: When is the best time to buy for maximum benefit?

A: The theory suggests that the market has processed all information. When dividends are announced, stock prices tend to rise. Buying during this period means paying a higher price but investing long-term is good. It’s better to buy when the stock price drops before the profit announcement (reflecting dividends) to get a better entry point.

Summary

Dividend stocks are suitable in a stable market environment where steady cash flow is desired, and you want your capital to grow. This investment performs well if you select companies that are truly good at this, pay reasonable and consistent dividends, and most importantly, buy at an appropriate price. Don’t follow rumors; directors should understand how to calculate and select stocks to avoid falling into stocks with seemingly good dividends but structurally flawed, or buying at high prices and holding “sleeping” for years. Then, investing in dividend stocks becomes a truly reasonable option.