Squirrelling away the most effective supplies

A man checks comparative returns from stocks, bonds and savings at last year’s SET in the City event. SOMCHAI POOMLARD

Although the Thai stock market is bounding back from the fourth quarter’s equity sell-off, which was triggered by concerns over the global economic growth cycle and the US-China trade tiff, it remains uncertain whether the trend will last long.

Amid uncertainties, dividend stocks can be a good safe haven for investment, helping weather tough times for the broader market.

When a stock’s price falls, the dividend yield goes up because the cash dividend is a larger percentage of the purchase price of each share. A high-enough dividend yield will attract investors, and their prices then fall at a slower pace than those with low dividend yields or no dividends.

Although dividends can be adopted in any market situation, bullish or bearish, not all companies paying dividends are worthwhile investments: high dividend payments could mean they have less money for investment to create earnings growth in the future.

Investors are advised to pick shares with a low price-to-earnings ratio and high cash flow, as a low P/E indicates that the stock is still cheap and has the potential to gain value, while high cash flow suggests that the company has plenty of money for dividend payments and investment.

To easily narrow down the search for high-paying dividend stocks, investors should take a look at stocks in the SET High Dividend 30 Index (SETHD). To be eligible components of the index, the 30 stocks must also be in the SET100 index, have large market capitalisation and trading liquidity, show three straight years of dividend payouts, and feature among the top 40 dividend plays.

As the annual dividend payment season, March to May, approaches, shares paying dividends once a year are the best strategic pick, as shareholders can earn higher dividend payments than from stocks paying interim dividends.

Time matters

Investors can enjoy a double windfall — receiving dividends and capital gains — if they buy and sell dividend-paying stocks at the right time.

Given the nature of dividend plays — prices always climb before the ex-dividend (XD) date and drop by the dividend amount or more on the XD date — implementing a “dividend capture” strategy lets investors gain more than just the dividend in the short term.

Dividend capture typically involves buying a stock before the XD date to qualify to collect the dividend, then selling some time later to lock in the profit from the share-price surge.

Asia Plus Securities (ASP) said in a research note that SET Total Return Index (TRI) surged 6.34% on average during the first four months over the past five years, while SETHD TRI outperformed with a 9.9% gain as investors piled into shares listed in the SETHD to receive dividends.

According to last year’s information, 410 listed companies announced dividend payments from March to May, accounting for 55% of companies that paid dividends based on 2017 performance.

ASP recommends two months before the XD date as the right time for investors to scoop up high-yield dividend stocks and then sell them on the XD date, because history has shown that investors can receive the highest return from capital gains and dividend yields at that point.

Based on a back-testing model to find out the average return of the SETHD over the past five years, investors would have gained a combined return of 3.96% on average from dividend payments and capital gains if they have bought dividend plays two months before the XD date and sold them on the XD date. There is a 86.7% possibility of positive returns, ASP said.

The likelihood decreases if dividend plays are bought on days closer to the XD date, the brokerage said.

Siam Commercial Bank (SCB) echoes ASP, saying 1-2 months ahead of the XD date is the best time to buy dividend-paying stocks, while investors should avoid piling into dividend plays weeks or days before the XD date because a buying spree for these stocks during the period always occurs, and their share prices then go up at a rapid pace and returns decline accordingly.

Search for dividends

SCB’s website says investors should explore stocks with steady dividend payments by looking at their dividend payment history of the past 5-10 years and considering securities analysts’ estimate about their dividend payment ability over the next 1-2 years.

Investors should refrain from buying stocks that pay dividends sporadically, the bank said.

Other dividend stock traits that investors should look for are strong financial positions with positive cash flow, low debt-to-equity ratio (particularly small short-term debt), low beta (a measure of a stock’s volatility in relation to the market) and high trading liquidity.

Investors with high market capitalisation size can easily sell shares.

Last but not the least, investors are recommended to buy dividend plays that deliver steady net profit.

Top 2019 dividend stocks

ASP filtered 15 attractive dividend plays for investment in 2019. Returns are expected to exceed the average 3.96% when bought two months ahead of going XD, they have paid steady dividends for at least five consecutive years, and they are rated “buy” by the broker given their upside potential.

The chosen stocks are IRPC Plc (IRPC), Ratchthani Leasing Plc (Thani), Sena Development Plc (SENA), Major Cineplex Group Plc (MAJOR), PTT Plc (PTT), Somboon Advance Technology Plc (SAT), PTT Exploration and Production Plc (PTTEP), Glow Energy Plc (GLOW), Pruksa Holding Plc (PSH), Ananda Development Plc (ANAN), Advanced Info Service Plc (ADVANC), InTouch Holdings Plc (INTUCH), Banpu Plc (BANPU), Siam Cement Plc (SCC) and Quality Houses Plc (QH).

IRPC is estimated to offer the highest yield at 18.6%, followed by Thani at 15.8%, SENA at 12.7%, MAJOR at 11.1%, PTT at 10.1%, SAT at 8.6%, PTTEP at 7.9%, GLOW at 7.7%, PSH at 7.4%, ANAN at 6.1%, ADVANC at 5.7%, INTUCH at 5.6%, BANPU at 5%, SCC at 4.9% and QH at 4%.

Market outperformers

The broker estimates that at least 10 of the 15 stocks will outperform the market in 2019.

Of the total 10, seven stocks are expected to benefit from capital inflows because their market cap is large, with high trading liquidity, and the remaining three are those whose dividend yields are expected to be higher than in the past.

The seven stocks are PTT, PTTEP, GLOW, ADVANC, INTUCH, SCC and BANPU.

“Based on analysis from purchases through non-voting depository receipts during Jan 1-22, these stocks were found to have ‘net buy’ positions,” ASP said. “This indicates that foreign investors are accumulating these shares, helping bolster their prices.”

The remaining three stocks are SAT, MAJOR and QH.

“Their share prices fell in recent days, enabling them to offer significantly higher dividend yields than in the past five years,” ASP said. “Earnings growth in 2019 is expected to remain solid, as reflected by their estimated positive earnings per share growth for 2019. Decline in their share prices presents a good opportunity for buying.”

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