How to Generate Dividend Income from Stock Investments: The Complete Guide for Beginner Investors

What Are Dividend Stocks and Why Are They Interesting

Investing in dividend stocks is a strategy that gains attention when the market moves slowly because it generates a steady income stream similar to a fixed deposit, while also providing opportunities to increase the value of your capital as stock prices rise. Additionally, it makes you a partial owner of the company.

Dividend stocks are securities of companies that have a policy of regularly returning profits to shareholders. Dividend payments depend on the company’s annual profits and approval from the shareholders’ meeting. These dividends come from the company’s profits, not from the original capital.

Empirical Example: If ABC Company announces a dividend of 1.75 baht per share and you hold 10,000 shares, you will receive 17,500 baht (before tax) as long as you hold the shares until the dividend entitlement date (XD date)

Types of Dividend Payments You Should Know

Different Types of Dividends

1. Cash Dividend (Cash Dividend)
The most common method. You receive money directly into your bank account. A 10% tax is deducted.

2. Stock Dividend (Stock Dividend)
The company issues new shares instead of cash. This helps the company retain cash but increases the number of shares in the market, which may cause the stock price to decrease.

Payment Periods

Annual Dividend: Paid once a year after the company closes its financial statements.

Interim Dividend: Some companies pay additional dividends mid-year, approved by the board.

Key Indicators for Choosing Dividend Stocks

To analyze which stocks are suitable for you, it is necessary to understand three key indicators:

1. Dividend Policy (Dividend Policy)

Each company has its own policy, such as:

• INTUCH: Pays dividends equal to the dividends received from subsidiaries (100% of profit)
• PTT: Pays at least 25% of net profit

This policy provides a broad framework for payments, but the actual rate must be approved by shareholders.

2. Dividend Payout Ratio (Dividend Payout Ratio)

Shows the percentage of profits paid back to shareholders.

Formula: (Dividends per share ÷ Net profit per share) × 100

Example: INTUCH in 2022 paid a dividend of 4.72 baht with EPS of 3.28 baht → 144% ratio (indicates payout from accumulated profits)

PTT in 2022 paid a dividend of 2 baht with EPS of 2.64 baht → 76%

3. Dividend Yield (Dividend Yield)

Indicates the percentage of your investment returned as dividends.

Formula: (Dividends per share ÷ Share price) × 100

Example: INTUCH pays a dividend of 4.72 baht, closing price 72.75 baht → Yield = 6.5%

If you buy at 50 baht → Yield = 9.44% (Lower cost yields higher returns)

Correct Strategy for Choosing Dividend Stocks

Common Mistakes to Avoid

1. Choose companies with strong fundamentals

Dividends come from profits only. If a company cannot sustain profits, dividends will stop. You should review performance over the past 3-5 years.

2. Reasonable payout ratio, not too low

The payout ratio should be above inflation rate (generally at least 2-3%) to preserve your money’s value.

3. Avoid abnormally high payout ratios

Stocks with consistently high ratios over 8-10% are rare. If found, check whether:

• It’s a one-time payout or short-term
• Paid from accumulated profits (which will run out)
• The stock may carry high risk

4. Consistency of payments is crucial

Review the historical dividend payments. Companies that pay steadily demonstrate financial stability.

5. Choose the right timing to buy

Your purchase price affects your dividend yield:

• Buy at 5 baht, pay 1 baht dividend = 20% yield
• Buy at 6 baht, pay 1 baht dividend = 16.7% yield

Waiting for the price to bottom before buying can increase your returns.

Steps to Buy Dividend Stocks: Getting Started

Step 1 - Open a brokerage account

Required documents:

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

Important: Register for E-Dividend service to have dividends automatically transferred to your bank account.

Approval time: 1-5 business days.

Step 2 - Transfer investment funds

Once your account is approved, transfer funds to the trading account, ready to buy when you find suitable stocks.

Step 3 - Find and monitor dividend stocks

• Create a Watch List of stocks you’re interested in
• Use technical charts to evaluate good entry points
• Calculate a fair price using fundamental analysis
• Wait until the price is below its intrinsic value

Step 4 - Follow information and dividend receipt timing

• Read the company’s annual report
• Wait for the shareholders’ meeting announcement to approve dividends
• Most importantly: Hold the stock until the date without XD (Ex-Dividend Date) to qualify for dividends

Note: If you buy on or after the XD date, you won’t receive dividends because XD means “Exclude Dividend” (excluding dividends)

Step 5 - Receive dividends

• Dividends will be transferred to your bank account within 1 month after approval
• The amount received is after 10% tax deduction
• This tax can be deducted when filing your annual tax return

Frequently Asked Questions

How many days before XD should I buy?

Anytime before the XD date. You will receive dividends if you buy before the XD date. If you buy on the XD date, you won’t get dividends.

How to check dividend stocks?

• Check the Dividend Payout Ratio or Dividend Yield on set.or.th
• Review the SETHD index, which includes the top 30 high-dividend stocks
• Analyze the company’s profitability

When is the best time to buy?

To maximize returns, buy when stock prices dip before the earnings announcement. Avoid buying after news about dividend payments, as the market may have already priced in the increase.

Summary

Investing in dividend stocks is a reasonable choice for those seeking steady income with opportunities to grow their capital over the long term. The key is to select companies with strong fundamentals, balanced payout ratios, and buy at fair prices. With careful study and planning, you can build a dividend stock portfolio that generates stable income.