Stock Investment for Regular Income Streams: A Practical Guide for Beginners

What Are Dividend Stocks and What Role Do They Play in Your Portfolio

Many investors are passionate about investment strategies that provide steady income returns. This is where dividends or receiving a share of the company’s profits play an important role, especially during volatile market conditions. Holding dividend stocks is akin to depositing money that earns interest, but with the added benefit that the principal value may appreciate over time.

In addition to cash returns, you also become a shareholder in the company, which means you have a say in management decisions and the right to receive important information directly from the company.

Understanding the Structure of Dividends More Deeply

Where Do Dividends Come From?

Dividends do not come from the company’s cash reserves but from the profits generated during a specific period. Every year, the company divides its profits into two parts: one part for reinvestment to expand the business, and the remaining part is returned to shareholders as a reward.

Importantly, the profits paid out as dividends may be from the current year’s earnings or from accumulated profits carried over from previous years.

If the company is not profitable or is operating at a loss, there will be no dividends to receive.

Concrete Example of Dividend Calculation

Suppose ABC Company announces a dividend of 1.75 baht per share, with the ex-dividend date on July 1. If you hold 10,000 ABC shares and continue to hold until July 1, you will receive a total dividend of 17,500 baht (before tax).

Important: Whether you have held the stock for a long time or just bought it on June 30, you are entitled to the same dividend if you hold the shares until the ex-dividend date. The only difference is your purchase cost.

How Many Types of Dividend Payments Are There?

Many investors think dividends are paid only in cash, but in reality, companies can pay returns in several ways.

Types Based on Payment Method

Cash dividends: This is the most common and popular method. Returns are credited directly to your account as actual cash, with a 10% withholding tax deducted upfront.

Additional common stock dividends: Some companies choose to pay dividends in the form of new shares instead of cash. This helps the company retain cash but has the downside that the number of shares in the market increases, which can lead to a decrease in the share price (Dilution).

Types Based on Timing

Annual dividends: Paid once after the fiscal year-end, usually announced in March, and approved at the shareholders’ meeting before payment.

Interim dividends: Some companies pay additional dividends outside of the annual dividend, often in the second half of the fiscal year, such as August-September, subject to board approval.

Key Metrics to Know When Choosing Dividend Stocks

Dividend Policy of Each Company (Dividend Policy)

Each company has its own policy framework. For example:

• INTUCH (InTouch Holdings) (INTUCH) has a policy of paying 100% of the income generated from its subsidiaries as dividends.
• PTT (Petroleum Authority of Thailand) (PTT) pays no less than 25% of net profit after reserves.

Understanding this policy helps you forecast dividends in advance. However, the actual payout rate must be approved by the shareholders’ meeting.

Dividend Payout Ratio (Dividend Payout Ratio)

This indicator shows what percentage of profits the company distributes to shareholders, calculated as:

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

Example: If INTUCH pays a dividend of 4.72 baht but has a net profit per share of only 3.28 baht, the payout ratio exceeds 100%. This indicates the company is using retained earnings to pay dividends.

Dividend Yield (Dividend Yield)

This is what most investors are truly interested in—how much return your investment will generate as a percentage.

Return Rate (%) = (Dividends per share ÷ Current stock price) × 100

Example: If INTUCH pays a dividend of 4.72 baht and the closing price is 72.75 baht, the yield is 6.5%. If you can buy at 50 baht, your return increases to 9.44%.

Smart Strategies for Choosing Dividend Stocks

1. Focus on the company’s fundamental quality

Dividends come from profits, so selecting a company with a strong financial base and long-term earning ability is crucial. Such companies are more likely to pay consistent dividends without destroying their value or operations.

2. Avoid chasing high dividend yields

The fact is, there is no such thing as “incredible high dividends paid forever.” If you see stocks paying much higher-than-normal dividends, you should check:

• Is this a one-time payout or a regular dividend?
• Is the company using this year’s profits or just drawing from accumulated profits from previous times?

The result is that you might receive high dividends only a few times and then wait for the stock value to recover.

3. Consistency is key

A one-time high dividend payment does not indicate a strong company. Look back over several years to see if the company pays dividends regularly. Companies that pay systematically over many years demonstrate financial stability.

4. Remember that returns depend on your entry cost

Two investors may hold the same stock but get different returns, depending entirely on their purchase price.

Example: A buys at 5 baht, B buys at 6 baht. If both receive a dividend of 1 baht per share, A’s return is 20%, B’s is only 16.6%.

Choosing the right timing to buy at an appropriate price is as important as selecting the right stock.

Steps to Investing in Dividend Stocks

Step 1: Open an account with a broker

Anyone entering the stock market must first open an account. Prepare these documents:

• Copy of ID card
• Copy of the first page of bank book
• Account opening form from the broker

Some brokers may request additional documents such as a statement of trading account to assess trading capacity.

Key Tip: Register for E-Dividend service simultaneously to have dividends automatically transferred to your account. Approval usually takes 1-5 business days.

Step 2: Transfer investment funds

Once your account is approved, transfer funds into your stock account to serve as collateral and trading capital.

Step 3: Find and select dividend stocks

Before buying, thoroughly research the stocks of interest. You can:

• Track prices in your Watch List
• Use price charts for timing analysis
• Use fundamental analysis (Fundamental Analysis) to determine attractive prices

When the timing seems right, you can proceed with the investment.

Step 4: Monitor company performance

Listen to earnings announcements and news from the company, as these will help you estimate dividends roughly. Wait for the shareholders’ meeting to approve the actual payout.

The key is to hold the stock until the ex-dividend date to qualify for dividends.

Step 5: Receive dividends

Dividends will be credited to your account within one month after the payout resolution, with 10% tax already deducted.

FAQs

Do I need to buy stocks before the XD date today or when?

You can buy anytime before the XD date. However, buying on the XD date itself does not entitle you to dividends because XD stands for “Exclude Dividend,” meaning “dividends are not included.”

How to check dividend stocks?

Two main ways:

1. Check the dividend yield (Dividend Yield) or dividend payout ratio (Dividend Payout Ratio) on the SEC website (set.or.th).
2. Check the SETHD index, which includes the top 30 highest dividend-paying stocks.

For deeper analysis, examine profitability and dividend policy. Companies with high profits and high dividend policies are more likely to pay substantial dividends.

When is the best time to buy for maximum benefit?

According to the “Efficient Market Hypothesis,” the market has already absorbed all information. When dividends are announced, stock prices tend to adjust upward afterward.

Therefore, for long-term investors, it is best to buy when the stock price is low before the announcement. This way, you avoid buying at a higher price driven by dividend expectations.