Yesterday, a Thai tap-water company, TTW, announced a dividend payout of 0.35 Baht per share. Now, I would like to further explain to those who have just gotten into investing and do not quite understand the dividend concept yet, with TTW as an example.
A public company, or a company that is listed on the stock market is like most companies. When the company is doing well, it would keep an amount of profit to expand the business while using that other amount to pay dividends to its shareholders. Therefore, if we have 10,000 shares in TTW, it means that we will receive a dividend of 3,500 Baht.
When a listed company announces its dividends, apart from the amount per share, there are other important information:
1. The exclude dividend date (XD)
People who buy shares on and after the XD date will not receive the dividend in that round. For example, for TTW, the XD date is 6 July, 2014, which means that if you buy TTW stocks before that date, you will receive a dividend of 0.35 Baht per share; however, if you buy it on July 6 or after, you won’t receive the dividend.
2. The dividend payout date
This is the day that the company pays out the dividend. Back in the days, this used to be a cheque posted to our homes, but now, we can opt for the automatic bank transfers.
In TTW’s case, the payout date was 21 March, 2014, therefore, if we transfer the dividend into the bank, we woujld receive that money by the end of 21 March, with a 10% tax deduction (so don’t be alarmed if the number isn’t exactly like the one we calculated).
After that, TTW will send some evidence paperwork our way through post, where we have two options:
A : Include that dividend into our yearly income, to claim tax later
B : Don’t include it into our yearly income and lose the 10% deducted tax
To choose whether you should take option A or B depends on your total dividend income per year, how much are your personal taxes (%) -if it’s more than 20%, then choose Option B, but if it’s less, then choose option A.
3. The financial report rounds
See which round did this dividend payout come from (which financial report at which period). For example, TTW’s report came from 1 July to 31 December 2013, which means that the profits this round come from the latter half of the year, meaning that TTW should pay out dividends 2 times a year (every 6 months).
While in other company cases, their dividends come from 1 January to 31 December, which means it is most likely that the company only pays out dividends once a year. The best way is just to go and see the records of dividend payouts of that company -how many times per year, and how constant.
For TTW, they paid twice last year, the first time at 0.3 Baht per share and the second time at 0.25 Baht per share, totaling at 0.55 Baht per share for the entire year.
Now, when it comes to whether or not you should invest in TTW, and how much you should invest, we can analyze based on previous principles:
- How capable is the company in generating stable profits?
- Are the dividends the company pays out from the actual profit?
- Is there a record of constant dividend payouts of that company?
In TTW’s case, when we look at the Jitta indicators, we will see that the business is quite strong. It is able to generate constant cash flows because it has a Jitta Score of more than 5 in every year.
When you look at Jitta Signs (of Jitta FacSheet), you will see that TTW has Revenue and Earnings that are quite constantly increasing and has a record of constant dividend payout. The danger point is that the dividend has increased more than the profit has, because the Dividend to Net Profit ratio has increased, however, it is less than the profit per year (which is still okay).
(Actually we can analyze deeper on whether the company’s dividend policy is suitable or not, which can tell us what the management is thinking -are they managing the company’s money to increase the value to shareholders, etc)
So if we’re okay with the business of that company, and think that the company can expand and increase its dividends in the following years (or at least, pay the same amount as this year), we can calculate the worthiness in investing. For example, with TTW, if we estimate that this time, they pay 0.35 Baht and next time, they pay 0.25 Baht, it means that the entire year we will receive 0.6 Baht per share. So if we buy the stocks at around 10 Baht, we would get a return from investment of around 6% this year.
And if TTW is able to constantly expand, the business value and share price would increase, making us benefit from Capital Gain and increasing Dividends.
Therefore, if we are satisfied with this amount of return, we can invest and afterwards keep track of TTW’s performance, whether it’s still a good company (Jitta Score, and whether its profits and dividends increase every year (Jitta Signs & FactSheet)
If it is still good, as we predicted, then we can keep holding onto the stock, however, if the company starts to have problems, for example, their concession expired and they’re unable to find other sources of revenue, then we should sell this stock.
So in conclusion, good investments is not just holding onto stocks in the long-run, but it is a constant monitoring of the company’s performance. Before, this is a quite hard task, so the given advice was to not invest in too many stocks because you won’t be able to keep track. But now, Jitta can help keep tract of your stocks’ performances and allow you to see the trends of the company, based on Jitta Score and other indicators that are updated every trimester.