When is the Best Time to “Trap” to Buy Stock Dividend?

When referring to a good “stock” which can reduce the risk of long-term investment, one of them must be the Capital Return. It means that a good company must be sincere with its shareholders. Simply put, when it is profitable, it must be shared by shareholders, that is, to pay dividends to shareholders. More importantly, it should pay be paid regularly.

“Good return on dividends means at least you have an appetizer (dividend) to eat while waiting for the main dish (gain on sales).” A golden statement by John Neff, a value investing investor that most Thai investors look up to and use his investment principles to invest in the Thai stock market.

One of the seven investment philosophies by John Neff is the stock with a stable dividend yield and from the information from Stock Exchange of Thailand, there are 25 listed companies that can pay dividend for 26 year (1992-2017). (Reference: www.set.or.th/set/education/knowledgedetail.do?contentId=5246).


The shares of the 25 companies listed above show that business grows consistently. No running out of cash is usually in business that is not as striking as others. If not a leader of business, then there is a high competition. Moreover, it is a business that produces product for everyday uses. (Factor 4).

Therefore, although facing the 1997 economic crisis such as Subprime Crisis, Euro Debt Crisis and political crisis, these businesses could continue to grow. This reflects the effective management and skilled management team, as well as giving importance to shareholders and investors.


It is undeniable that investors want to buy stock dividend stored in the port, especially investors who emphasize on long-term investment. In addition to reducing the risk, they can also receive cash flow from dividend continuously.
 

This means that the stock dividend is paid every year in the port, thus, the dividend yield in the port is also consistent. Even though the stock market is down, there is no need to be worried about the share price that fluctuates because if it has not been sold, dividends can still be received. As a result, buying and holding the stock dividend for a long time, the dividend yields are very important, since the investors can get cash flow from the stock dividend.


If you want to store stock dividend in the port, the most important question is when to buy it. And the answer is buy it on the day before the listed companies announce the dividend payment and set up the XD sign (XD: Excluding Dividend is the date on which the investors who bought the share of the company are not entitled to receive dividends).

The most suitable time for collecting stock dividend is one to two months before the company announce XD sign. It’s usually around the period from March to April. Therefore, during the month of January to the early February, it’s a good time to buy stock dividend.


The most inappropriate time to buy stock dividend is during the time near the announcing of XD sign such as one week or one to two days because most investors are going to buy the dividend during this time. As a result, stock prices will rise since the more expensive the stock is, the lesser the return on dividends is. 


Dividend Yield Rate = (Dividend Per Share/Current Share Price) x 100

 

For example:

  • Stock ABC on January 1, 2018, the price is at 25 baht. The company announces the dividend at 2 baht. The yield is 8%.
  • Stock XYZ on January 1, 2018, the price is at 18 baht. The company announces the dividend at 2 baht. The yield is 11.11%.
     

From the above examples, although both stock ABC and XYZ pay the dividend at 2 baht, but stock XYZ has a higher dividend yield rate because it has a lower stock price.


Therefore, if you are interested, you should find the time that the stock dividend prices have not increased or if possible, buy it during the downturn because the share price (including the stock dividend) will decline in accordance with overall market condition.
 

Moreover, one important point to remember is should you buy stock dividend with how much dividend yield rate? This issue is based on the level of satisfaction of investors. For example, the average rate used since the first trading day of Thai stock market. According to the statistic from the last 43 years, the Thai stock market has a yield of around 4%, which means that stock dividend received each year must not be less than 4%.
     

Or in other cases, investors may determine that the dividend should not be lower than the rate of dividend yield of the Thai stock market that year, plus the inflation rate, the average savings of five large banks. For instance, currently, the yield of Stock Exchange of Thailand is at 2.9%, inflation is at 1.33%, average savings of large commercial banks of five banks is 0.87%, and when combined, is at 5.1%. This refers that stock dividend received each year must not be less than 5.1%

When received the desired dividend yield, you need to find a consistent stock dividend. View the history dividend payment of the previous years as much as possible like 5 years, 10 years, 15 years, etc. Then, look ahead 1-2 years whether you are able to pay dividend or not by observing the analyst’s assessment. (As for the dividend that is not consistently paid such as paid 5 years ago, the next 2 years did not pay, and paid again last year, but the analyst haven’t analyze for next year, then it must be avoided).

The stock that has the ability to pay a regular dividend has the following features:

  • The performance is growing steadily. Although sales and profits will not grow as leap as other expanding companies, but the performance will grow in a gradual manner. More importantly, there will be no money loss.

  • The performance is predictable. A good stock dividend can easily predict future performance. The method is to bring the earnings forecasted per stock and multiply by the dividend policy. Thus, we can estimate the dividend payout roughly.

  • Best dividend payout. No matter the economic declines or expands, the company is willing to pay the dividend consistently.

  • Strong financial structure. Cash flows from operation is positive by looking back many years, because the cash flow is indicative of the ability to pay the dividends.

  • Low debt. We can see the debt structure by looking at the D/E Ratio, especially the short-term debt. If there is a lot, it may diminish the ability to pay dividend.

  • High flexibility. Most stock dividends are not high in flexibility due to investors invest on long-term investment. Thus, you should look for stock dividend that has large market cap. This is because if we want to sell it, we can do it immediately or if it’s a low market cap, it is advisable to select stocks that have a free float distribution that is more than 15%.

  • Low beta is a factor that is used to compare stock price movements with stock index movements. If it is a stock dividend, then there is a low beta, in which the share price is likely to fluctuate less than the market. For instance, stock ABC have a beta of 0.7, which means, if the stock index rises by 10%, stock ABC will rise 7%. On the other hand, if the stock index falls by 10%, stock ABC will fall 7%.

It cannot be deny that stock dividend is a good investment choice in the long run where you can collect dividend consistently, so that the money can be used after retirement.