Stock dividends: Understanding the system of returning payments to investors

Investing in dividend-paying stocks is another way for investors to generate continuous income from holding dividend stocks. An added benefit is the opportunity to increase capital value through stock price appreciation simultaneously.

What Is a True Dividend Stock?

Dividend stocks, or stocks that regularly pay income to shareholders, are shares of companies managed with a system of profit distribution according to a predetermined plan. The dividend payout depends on the company’s profitability and must be approved by the shareholders’ meeting.

When a company makes a profit each year, it allocates a portion of the earnings. Part of this is reinvested to expand the business, while the remaining is paid out to shareholders as dividends.

For example, if a company announces a dividend of 1.75 baht per share and an investor holds 10,000 shares, they will receive a total dividend of 17,500 baht ( before tax ). This entitlement is maintained as long as the investor holds the shares until the ex-dividend date.

Understanding Different Types of Dividend Payments

Dividend payments to shareholders do not have to be in cash alone; there are various systems of payment.

Types by Payment Method

Cash is the most common and popular method. Investors receive cash flows similar to interest from fixed deposits, with a 10% withholding tax deducted before transfer.

Stock involves issuing new common shares as a form of return. This helps the company conserve cash and offers investors the option to sell the shares for cash instead. Paying dividends in stock often increases the number of shares in the market, but investors do not need to pay for the additional shares.

Types by Timing

Annual Dividend is paid from the company’s profits during the fiscal year, typically not later than March of each year, and requires approval at the shareholders’ meeting before actual payment.

Interim Dividend is an additional dividend paid outside the regular annual payout, usually around August-September, for companies with a policy of paying dividends twice a year.

Key Terms for Evaluating Dividend Stocks

Analyzing dividend stocks requires multiple indicators to gain a clear perspective.

Dividend Policy (

Different companies have varying dividend policies. For example, some companies pay all dividends received from subsidiaries, while others pay no less than 25% of net profit.

If a company has a profit per share of 3.3 baht and a policy of paying 100%, it is likely to pay 3.3 baht per share.

Another company with a profit per share of 2.64 baht and a policy of paying at least 25% will likely pay a minimum of 0.66 baht per share.

) Dividend Payout Ratio ###

This ratio indicates the proportion of actual dividends paid out relative to net profit per share. It shows investors what portion of profits is returned to shareholders.

Formula: (Dividend Payout Ratio) = (Dividends per share / Net profit per share) × 100

Example: If a company pays a dividend of 4.72 baht but has a profit per share of only 3.28 baht, the payout ratio exceeds 100%, indicating retained earnings are being paid out.

Another example: If a company pays 2 baht in dividends with a profit per share of 2.64 baht, the payout ratio is 75%.

( Dividend Yield )

This measures the proportion of dividend income relative to the investment amount. It indicates the percentage return received.

Formula: ###Dividend Yield( = )Dividends per share / Stock price( × 100

Example: If Investor A buys shares at 50 baht and receives a dividend of 4.72 baht, the yield is 9.44%.

Compared to Investor B, who bought at 72.75 baht and received the same dividend, the yield is only 6.5%.

Steps to Buy Dividend Stocks

) 1. Open an account with a broker

Investors should prepare a copy of their ID card, a copy of their bank account page, and documents from the broker. They may also be asked to provide bank statement details. Some brokers will set trading limits based on financial history.

It is recommended to register for E-Dividend service so that dividends are automatically transferred to the bank account when paid. This process takes 1 to 5 business days.

( 2. Transfer funds into the account

Once approved, investors can transfer money into their stock account. This amount will serve as collateral and trading limit, and they can buy stocks immediately if suitable dividend stocks are available at the right price.

) 3. Analyze and select dividend stocks

Investors should study, monitor stock prices from their Watch List, and use technical charts to evaluate entry points. Additionally, fundamental analysis can be used to find attractive purchase prices.

4. Follow operational information

Investors should track the company’s annual profits to estimate dividend payments for that year, then wait for the announcement of the ex-dividend date and shareholder meeting resolution. Once approved, they must hold the shares until the ex-dividend date to be eligible for dividends.

5. Receive dividends

Dividends will be transferred to the E-Dividend registered bank account within one month after the resolution date, with 10% tax deducted first. Investors can deduct this withholding tax when filing their annual tax return.

Tips for Smart Dividend Stock Selection

Find companies with sustainable profitability

Since dividends come from profits, choosing financially sound companies capable of long-term profitability is fundamental. This ensures the company can pay dividends continuously without devaluing the stock or harming the business.

Returns should exceed inflation rates

At a minimum, dividend yields should be higher than the inflation rate, which is about 2% per year. This helps investors preserve their wealth.

Follow reasonable dividend policies

Very high dividend yields paid consistently are unrealistic. When encountering stocks with suspiciously high returns, investigate whether the payout is a one-time event or from dwindling accumulated profits. Such dividend policies are usually short-lived, and investors may receive high dividends only a few times before holding stocks with declining value or deteriorating fundamentals.

Look back to identify consistent payout patterns

Don’t decide based on a single year’s payout ratio. Instead, review the company’s historical dividend payments to see if they have been consistent. Companies with steady dividends reflect financial stability.

Improve cost management efficiency

Even if dividends are the same, returns vary depending on holding costs. The lower the cost, the higher the dividend yield.

Example: Investor A buys dividend stocks at 5 baht and receives 1 baht in dividends, yielding 20%.

Investor B buys the same stock at 6 baht and receives 1 baht in dividends, yielding only 16.6%.

Timing the right purchase is crucial for maximizing dividend returns.

Frequently Asked Questions

How many days before the ex-dividend date should I buy?

You can buy several days before the ex-dividend date, but once the stock goes ex-dividend, buyers on that day lose the right to dividends. The ex-dividend (XD) mark means “Exclude Dividend”; from that day onward, new buyers are not entitled to the upcoming dividend.

How do I find out which stocks pay dividends?

Check basic information such as Dividend Yield or Dividend Payout Ratio on relevant websites, or look at the SETHD index, which includes the top 30 high-dividend stocks. You can also analyze based on profitability and dividend policies of the companies.

When is the best time to buy dividend stocks for maximum returns?

Stock prices tend to adjust after news or announcements. If investors buy after dividends are announced, stock prices may rise to reflect the dividend value. For long-term investment, it’s better to buy when prices have corrected downward and before the earnings announcement, to avoid overpaying and getting stuck with declining stocks.