Understand what a Dividend is and the steps to invest in dividend stocks wisely

2026-01-06 16:47:15

Dividend is a steady income stream from owning shares

If you’re looking for a way to generate passive income from the stock market, investing in dividend-paying stocks might be a good solution. Especially during a stagnant market. Dividend is the money paid out by a company to shareholders from its annual profits. This dividend payout provides investors with continuous cash returns, similar to a fixed deposit, along with the potential for capital growth as stock prices increase. Additionally, holding dividend stocks makes you a true shareholder and allows you to participate in the company’s activities.

Dividend payout structure: accumulated profits versus current year’s profit

Dividend stocks arise from a company’s policy of sharing profits, not from working capital. When a company generates net income, it allocates part of it to reinvest in operations and pays the remaining to shareholders. These dividends may come from current-year profits, special profits, or even accumulated profits from previous years that are still retained.

For example, if ABC Company announces a dividend of 1.75 THB per share, and the ex-dividend date (Ex-Dividend Date) is July 1st. If you hold 10,000 shares and keep holding until June 30th, you are entitled to receive 17,500 THB (before tax). Whether you are a long-term shareholder or just bought on June 30th, the difference lies in your investment cost.

Types of dividend payments: not just cash

Most investors are familiar with cash dividends, but companies have various ways to pay dividends:

Direct cash payment is the most common form. Returns are credited to your account like interest from a deposit, with a 10% withholding tax, which may help reduce annual tax liability.

Stock dividend involves issuing new shares instead of cash. This method helps the company preserve cash. It may dilute the stock price (Dilute) because the number of shares in the market increases, but you do not need to pay extra to receive these shares.

Payment frequency: annual dividends versus interim dividends

Annual dividends are paid from the company’s profits for the fiscal year, announced after the financial statements are closed (no later than March), and approved at the shareholders’ meeting, with actual payment about a month later.

Interim dividends are paid outside the annual payout period, such as in August-September, for companies with a policy of paying twice a year. These are approved by the board of directors and reported at the next shareholders’ meeting.

How to measure dividend payout: formulas and ratios to know

###Dividend Policy(

Each company sets its own payout framework. For example, one might pay 100% of dividends from subsidiaries, or another might pay no less than 25% of net profit after reserves.

)Dividend Payout Ratio###

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

This indicator shows how much profit the company distributes to shareholders. For example, if earnings per share are 3.28 THB and dividends are 4.72 THB, it indicates the company is using retained earnings to pay additional dividends. Paying over 100% suggests the company is drawing from accumulated profits to maintain a steady payout rate.

(Dividend Yield)

Formula: ###Dividend per share ÷ Current stock price( × 100

This is the most important metric for you. It tells you what percentage return you will get annually if you buy the stock at today’s price.

For example, if the dividend is 4.72 THB and the stock closes at 72.75 THB, the yield = 6.5%. If you buy at 50 THB, the yield = 9.44%. This explains why purchase cost is crucial.

How to choose dividend stocks: caution advised

)Caution: High-yield dividend stocks with suspiciously high rates

Stocks with abnormally high dividend yields and continuous payouts are unlikely to exist naturally. If you see a “miraculous” payout rate, dig deeper, such as:

One-time payout or using up all accumulated profits — indicates the company might be recklessly depleting its portfolio.
Payout ratio over 100% — a red flag. Many investors get trapped here: high dividends in the first week but holding stocks that keep losing value over time.

(Caution: Inflation and capital preservation

Dividend returns should at least match the inflation rate. If inflation is 2% per year but your dividend yield is only 1.5%, you are effectively losing money.

)Caution: Irregular payouts

Review the past 5 years, not just the current year. Companies with consistent and appropriate payout history demonstrate financial stability.

How to buy dividend stocks: actual steps

###Step 1: Open a stock trading account with a broker

Prepare documents: ID copy, bank account copy, and broker’s form. Additional documents may include a 3-month bank statement.

Remember: Register for E-Dividend service simultaneously to have dividends automatically credited to your bank account.

Time frame: 1-5 business days.

###Step 2: Deposit funds for trading capital

Approve the account → Transfer money into the trading account → Start trading.

###Step 3: Find good dividend stocks

Use a Watch List to monitor stock prices of interest. You may use technical charts or fundamental analysis to determine entry points. Wait until the price reaches your target entry.

###Step 4: Monitor operations and XD date

Follow annual profit reports to estimate dividends roughly. Then wait for official approval by the board and shareholders’ meeting.

Important: Hold the stock until the XD date to qualify for dividends.

###Step 5: Receive dividends

Dividends are credited to your bank account within 1 month after approval. The amount is already net of 10% tax.

Valuing dividend stocks: what to check

Is the company’s fundamentals good? — Long-term profitability ability is the first criterion. Poor fundamentals mean dividends will likely be absent.
Is the payout ratio too low? — Should not be below inflation.
Is the payout ratio too high? — If very high, question whether it’s a one-time or accumulated payout.
Consistency — Review 5-year history, not just 1 year.
Entry cost — Your return may vary depending on your purchase price.

Frequently Asked Questions

Q: How many days before XD should I buy?

A: Anytime, but avoid buying on or after the XD date. XD = Exclude Dividend. On the XD day, you lose the right to receive dividends.

Q: Where to check dividend stocks?

A: Look at the Dividend Payout Ratio or Dividend Yield on the SET website, or for high dividend stocks, check the SETHD index which includes 30 high-yield dividend stocks.

Q: When is the best time to buy for maximum returns?

A: The market quickly absorbs information. After dividends are announced, stock prices tend to rise. You should buy before the announcement, during the correction phase, to avoid paying too high a price.

Summary

Dividend stocks are an attractive investment tool for generating additional income, especially in stagnant markets. Understanding what dividends are, their payout structure, how to measure payout ratios, and pitfalls to avoid will help you make smarter investment decisions.

A good dividend stock is not just about a high rate but also involves strong company fundamentals, consistent payouts, and buying at the right timing. Review 5-year history, assess profitability, and don’t forget the crucial factor of your entry cost.

This article aims to give you a clear picture of dividend investing — from stock selection, buying steps, to avoiding mistakes that could lead to long-term losses.

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