Dividend Stock Investing: A Practical Guide from Buying to Smart Selection

Why Are Dividend Stocks a Good Investment Option

Dividend stocks are particularly attractive for those looking to generate additional income from their holdings, especially during periods when the market is relatively stable. This investment approach offers two benefits: receiving regular dividend returns similar to a fixed deposit, and the potential for capital appreciation from future stock price increases. Additionally, it allows investors to become part-owners of the companies they choose to invest in.

Meaning and Characteristics of Dividend Stocks

Dividend stocks are shares of companies that have a consistent dividend payout policy, paid out from the profits generated each year. The key factor is that the actual dividend amount depends on the company’s profits and the approval of the shareholders’ meeting.

Example calculation: If XYZ Company announces a dividend of 1.75 baht per share on the XD date of July 1, investors holding 10,000 shares (—whether held previously or purchased before the XD date—will receive 17,500 baht )before tax(. The important point is to hold the shares until after the XD date to be eligible.

This dividend income comes from the company’s net profit, not from registered capital. The company distributes profits into two parts: one retained for reinvestment to expand the business, and the other returned to shareholders. Dividends may come from annual profits, special profits, or accumulated profits from previous years.

Types of Dividend Payments Investors Should Know

) Classification by Payment Type

Cash: The most common method, where investors receive money directly into their bank accounts with a 10% withholding tax. This format is suitable for those seeking steady income.

Common Shares: Payment in the form of new shares instead of cash. This helps the company retain liquidity but may cause stock dilution ###Dilution( due to an increase in total shares.

) Classification by Payment Period

Annual: Paid from profits known at the end of the fiscal year ###no later than March(, approved at the shareholders’ meeting, and paid within about a month.

Interim: Paid outside the regular period, such as August-September, for companies that pay twice a year. Approval from the company’s board of directors is required.

Key Indicators for Selecting Dividend Stocks

) Dividend Policy ###Dividend Policy(

Each company has its own dividend payout approach. For example, some companies pay out 100% of dividends received from subsidiaries, while others pay no less than 25% of net profit. This policy provides a framework for payout trends, but the actual rate must be approved by shareholders.

) Dividend Payout Ratio ###Dividend Payout Ratio(

This figure shows what proportion of profits the company distributes to shareholders, calculated as:

)%( = )Dividends per share ÷ Net profit per share( × 100

Example: Company A pays 4.72 baht dividend per share with a net profit of 3.28 baht per share → payout ratio of 144%. )Using accumulated profits additionally(. If Company B pays 2 baht dividend with a net profit of 2.64 baht → payout ratio of 75%. )Balanced payout with performance(

) Dividend Yield ###Dividend Yield(

This indicator compares dividend income to the investor’s investment:

Dividend Yield )%( = )Dividends per share ÷ Current stock price( × 100

Example: Buying a stock at 50 baht with a dividend of 4.72 baht yields 9.44%. Buying at 72.75 baht yields 6.49%. The key is that the lower the purchase cost, the higher the dividend return.

Smart Strategies for Selecting Dividend Stocks

) 1. Find companies with long-term profit potential

Since dividends come from profits, choosing companies with solid fundamentals and stable income streams is the first condition. Such companies are likely to pay dividends regularly without diminishing their business value.

2. Look for payout ratios that are not too low

Investors should select stocks with dividend yields above the average inflation rate. If the average inflation is around 2% per year, dividends should be higher than 2% to prevent erosion of your asset value by inflation.

3. Beware of abnormally high dividends

Extremely high and consistently paid dividends are often not a good sign. Check whether: they are a one-time payment or multiple? Are they using up accumulated profits? Such high dividends are usually short-lived, and investors may only enjoy high payouts for a few times before holding stocks with falling prices for a long time.

4. Review the history of consistent dividend payments

Don’t just look at one year; review at least 3-5 years of dividend history to see if the company has paid dividends continuously. Consistent payments indicate financial stability and good management.

5. Timing your purchase to maximize returns

Even with the same dividend payout rate, your actual return depends on your purchase cost. Example: Investor A buys at 5 baht and receives 1 baht dividend → 20% return. Investor B buys at 6 baht and receives the same dividend → 16.6%. Timing your purchase at a lower price is a crucial skill.

Steps to Buy Dividend Stocks Without Falling into Traps

Step 1: Open a trading account with a member institution

Prepare documents: a copy of ID card, bank book, and account opening form. You may need to show your bank statement for the institution to assess your appropriate trading limit. Approval generally takes 1-5 business days.

Tip: When opening an account, also register for automatic dividend transfer service to your bank account so you receive dividends immediately when paid.

Step 2: Deposit funds for trading capital

Transfer money into your trading account sufficient for your investment plan. Once the account has funds, you are ready to buy dividend stocks as desired.

Step 3: Select stocks and monitor prices

Research companies of interest in advance. Use a Watch List to track prices or employ technical analysis and fundamental valuation to determine entry points. When the price reaches your target, buy and add to your portfolio.

Step 4: Follow earnings and dividend announcements

Monitor the company’s annual profits, which help estimate that year’s dividends roughly. When the company announces its performance, wait for the shareholders’ meeting to officially approve the dividend rate.

Step 5: Hold shares until the XD date to secure dividend rights

After dividend announcement, hold the shares steadily until the XD date ###Exclude Dividend(, meaning buying on that day will not entitle you to dividends. Buying before this date, any number of days prior, is acceptable as long as it’s before XD.

) Step 6: Receive dividend payments

Dividends will be credited to your bank account within about one month after the resolution to pay, with 10% tax deducted. This tax can be used as a deduction when filing your annual tax return.

Frequently Asked Questions

Q: How many days before XD do I need to buy shares to get dividends?
A: You can buy any day before the XD date. However, on the XD ###Exclude Dividend( date, you will no longer be entitled to dividends.

Q: Where can I check dividend stocks?
A: Check the dividend payout ratio )Dividend Payout Ratio( or dividend yield on securities information websites. For high-dividend stocks, observe the SETHD index, which includes 30 high-dividend stocks of the market. You can also analyze based on profitability: high profits and high dividend policies tend to correlate with higher dividends.

Q: When is the best time to invest in dividend stocks?
A: According to market efficiency theory, stock prices already reflect dividend news. Therefore, buying after dividends are announced means the price has already increased. A smarter approach is to invest long-term, buy during price dips before earnings reports, which helps avoid overpaying and reduces the risk of holding stocks at high prices.