Dividend Stocks: Why Investors Should Consider "Dividend Stocks" as an Alternative

Understanding Before Investing: What Are Dividend Stocks Really?

Dividend stocks are shares of companies that have a policy of continuously sharing profits with shareholders. But this does not mean the money is actually taken from the fund in September. If the company makes a profit, a decision is made on how much to retain for further business development and how much to return to shareholders as dividends.

The important point is that dividends come from actual profits, not the company’s capital. If the company does not have a profit, there can be no dividends. Clear and correct, right?

For example: Company ABC announces a dividend of 1.75 baht per share, with the ex-dividend date on July 1. If you hold 10,000 shares until that date, you will receive 17,500 baht (before 10% tax). It doesn’t matter when you bought the shares; as long as you hold until the ex-dividend date, you get the dividend.

How to Properly Buy Dividend Stocks: Step-by-Step from Zero

Step 1: Open a stock account with a broker

To buy dividend stocks, you must open an account first. Use your ID, a copy of your bank statement, and proof of address from your chosen broker. Some brokers may require additional documents such as a recent bank statement summary.

Tip: Register for the automatic dividend transfer service (e-Dividend) when opening your account. When dividends are paid, they will automatically go into your bank account, saving time and hassle. Approval takes about 1-5 business days.

Step 2: Deposit funds for trading

Once your account is active, transfer money into your stock account. This will be your trading capital. Manage your funds wisely; avoid going all-in on a single stock.

Step 3: Select and monitor dividend stocks

Before buying, do a quick study of the companies you’re interested in. Check their dividend payment history, profits, and business outlook. While waiting for the price to adjust, monitor the price movements via charts or watch lists. Buy when the price is right—no need to rush.

Step 4: Hold until the XD date and wait for dividends

After purchasing, hold the shares until the ex-dividend date to secure the dividend rights. Follow news on financial reports and shareholder meeting resolutions. Dividends will be credited within one month after approval and 10% tax has been deducted.

Dividend Stocks: Think Deep Before Buying

1. Choose companies that are truly profitable

Dividends come from profits, so the company must be capable of generating revenue and managing costs effectively. If the company deteriorates, dividends disappear. Choose relatively stable industries like banking, energy, or distributors.

2. Beware of “phantom dividends”

Stocks that pay very high dividends consistently often have hidden issues. Check whether the dividends are paid from normal profits or accumulated profits during periods of reduced earnings. If from the latter, dividends may not last long, and the stock price may gradually decline.

3. Understand the dividend payout ratio

Dividend Payout Ratio (Dividend Payout Ratio) = (Dividends per share ÷ Net profit per share) × 100

This ratio indicates what percentage of profits is paid out as dividends. For example, if PTT has a net profit per share of 2.64 baht and pays a dividend of 2 baht, the payout ratio is 75%, which is considered appropriate—leaving 25% for company development.

4. Check for consistency

Look back over 5 years to see if the company has paid dividends continuously. If dividends are paid some years but not others, it signals unstable profits. Choosing companies with steady dividend payments reduces risk.

5. Time your purchase for the right price

Dividend Yield (Dividend Yield) = (Dividends per share ÷ Purchase price) × 100

Someone buying at 50 baht and someone at 70 baht for the same stock will have different returns. Example: If the stock pays a 5 baht dividend, buying at 50 baht yields 10%, but buying at 70 baht yields only 7.1%. Waiting for the price to drop is a key tip.

Types of Dividend Payments: Not Just Cash

Dividend stocks can pay in various ways:

1. Cash dividends - The most common method. Money goes directly into your account, and 10% tax is deducted.

2. Stock dividends - New shares are issued instead of cash. This often increases the total number of shares in the market (diluted share). One advantage is that the company retains cash for further development.

By timing:

• Annual dividends - Paid once a year, usually after the fiscal year ends around March.
• Interim dividends - Paid mid-year, around August-September. Companies often pay this when operations perform better than expected.

Dividend Policy: Each company has its own approach

Dividend Policy (Dividend Policy) is the measure set by the company on how much profit to pay as dividends.

For example, INTUCH has a policy to pay 100% of dividends from subsidiaries’ profits, meaning if EPS (Earnings per share) is 3.3 baht, it will pay 3.3 baht. PTT, on the other hand, has a policy to pay no less than 25% of net profit. If PTT’s EPS is 2.64 baht, it will pay at least 0.66 baht.

This policy provides a rough framework, but the actual rate must be approved at the shareholders’ meeting.

Things to Know Before Deciding

You should not buy dividend stocks if:

• The stock price is very high, having missed the earnings announcement window, resulting in lower returns.
• The company shows signs of weakening, even if past dividends have been steady.
• The dividend is very high but has no long history; it might be a one-time payout and difficult to sustain.

You should buy when:

• The market is sluggish, stock prices have fallen, but the company remains strong.
• The dividend yield is attractive, say 4-7% or higher.
• The company has a good, consistent dividend payment history.

Frequently Asked Questions (FAQ)

Q: How many days before the XD date do I need to buy to receive dividends?

A: You can receive dividends if you buy before the XD date. However, from the XD date (Exclude Dividend) onward, you will not be eligible for dividends because they are already paid out that day.

Q: How to check if a dividend stock is good?

A: Look at the dividend payout ratio or dividend yield. Stock exchange websites display this information. Another way is to assess the company’s profitability—high profits and a good dividend policy usually lead to higher dividends.

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

A: According to efficient market principles, high dividend announcements are often anticipated and reflected in stock prices. Therefore, buying when the market is indifferent or after prices have fallen, before good financial results are announced, is better. This way, you avoid buying at high prices and can maximize returns.