Open a way to earn main income through dividend stocks. Have you ever thought about it?

Dividends are the share of profits that a company distributes to its shareholders each year. When you receive dividends, it means you own a part of that business and benefit from a steady cash flow, similar to depositing money in a bank that earns interest annually.

Things to Know Before Buying Dividend Stocks

The importance of choosing a company with a strong foundation cannot be overstated. Not all dividend-paying stocks guarantee stability and continuous profitability. A company must have the ability to generate at least enough profit to distribute shares to investors.

Dividend payments come in various forms: cash is the most common, but sometimes companies pay with new shares instead. Additionally, there are annual dividends (most paid after the fiscal year closes), and interim dividends (when the company makes profits multiple times within a year).

Dividends and Return Analysis You Need to Understand

Dividend Payout Ratio (Dividend Payout Ratio) indicates what proportion of the company’s profit is distributed to shareholders relative to total earnings. For example, if Company A has a earnings per share of 3.3 baht but pays only 1.75 baht in dividends, the payout ratio is 53%, meaning the company retains the other half for further investment.

Dividend Yield (Dividend Yield) measures how much return you get from your investment in dividends annually, depending on the stock price you paid. Different buyers at different prices will get different yields. The lower your purchase price, the higher your yield.

Strategies to Avoid When Buying Stocks

The biggest danger investors often fall into is chasing high dividend yields without considering long-term losses.

Stocks with unusually high dividend yields should be scrutinized: Are these payments from a one-time accumulated profit? Or can the dividends be sustainable? Sometimes, companies pay dividends to make their stock look attractive temporarily, then the stock price continues to fall.

Choose companies with a consistent dividend payment history for at least 5 years, paying at a reasonable rate such as 3-7% per year. This indicates stable management and financial health.

How to Start Buying Dividend Stocks

Step 1: Open an account with a broker Submit copies of your ID card, bank book, and bank check. It’s recommended to register for E-Dividend service simultaneously so dividends are automatically transferred to your account (within 1-5 business days).

Step 2: Transfer funds into your account Once approved, deposit your investment capital as collateral for trading.

Step 3: Research and monitor movements Use a Watch List to track prices or apply technical analysis to find the right buying opportunity. However, avoid buying before the ex-dividend date (excluding dividend payout date).

Step 4: Watch for earnings announcements and ex-dividend dates Follow dividend announcements and ex-dividend dates. You must hold the stock until the ex-dividend date to be eligible for dividends.

Step 5: Receive your dividends Dividends will be credited to your account about one month after the approval meeting, with 10% tax already deducted.

Why Timing of Purchase Matters

After dividend announcements, stock prices often rise to reflect the dividend payout. Investors who buy late tend to purchase at higher prices, resulting in lower returns.

Example: The same stock pays 1 baht dividend per share. Someone buying at 5 baht per share gets a 20% return, while someone buying at 6 baht gets only 16.6%. The difference comes from the purchase cost.

Key Information to Check When Choosing Stocks

Good dividend stocks should meet these criteria:

• The company has reasonable profits, not just showing off
• The payout ratio is reasonable (not too low, but not suspiciously high)
• A consistent dividend payment history over several years
• The stock price has recovered from previous lows (not at old prices)

For checking dividend stocks, you can visit the SET website at SET.or.th or look at the SETHD index, which includes the top 30 high-dividend stocks.

Summary of Smart Dividend Investing

Dividends are a good way to generate income streams, suitable for those who prefer lower risk. However, it’s crucial to select the right companies to avoid falling into the trap of high yields.

The most important thing is to buy dividends from companies with strong fundamentals, reasonable payout rates, a consistent history, and to carefully monitor prices. Dividends can help recover your initial costs faster, but in the long run, the stock itself should grow so that cash flow and wealth increase together.