Many newbie investors in the stock market seem to forget that capital appreciation is not the only way to earn money. As we’ve explained before in an article on How to make money using stocks, another form of income that stockholders receive is the dividend.
Dividends may come in the form of cash or stocks. Cash dividends are, obviously, cash amounts distributed to stockholders on record during a certain date. Stock dividends, on the other hand, are additional shares of the company given to stockholders at no cost.
In the Philippines, several stocks have high dividend yields which further increases the income potential of a stock or compensates for its price decrease.
Take, for example, PLDT (Code: TEL), a company that consistently pays the highest dividends in the Philippine Stock Exchange. If you bought a TEL stock at the start of January 2011 at a price of P2,550.00, your stock is down 16% by the 3rd quarter of the year. But since the company paid P222.00 dividends per share this year, this cash dividend is already real income that stockholders pocket. Thus the 16% paper loss in TEL is compensated by the dividends, bringing down the loss to just 7%.
In contrast, if you bought a stock of First Philippine Holdings (Code: FPH) at P62.60 during the start of the year, your capital loss by the 3rd quarter is 15%. The company in 2011 paid only P1.00 dividend per share. Thus, the total loss has only been reduced from 15% to 13%.
TEL may have higher capital losses than FPH, but factoring in the dividends distributed by the companies, a stockholder is actually losing more in FPH compared to TEL. That is the impact of dividend income.
In the Philippines, the top 10 stocks paying the highest dividend yield are shown in the table below.
Top 10 PSE Stock with Highest Cash Dividend Yield – 2011
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Dividend Yield is computed as total dividends paid during the year divided by the price of the stock. The dividends considered are cash dividends whose ex-dates are from January to September 2011. The stock prices used are the closing prices on October 6.
Some companies pay regular and special dividends. Regular dividends are usually paid at a specific time of the year, while special dividends are not recurring, meaning, they are given only in certain occasions such as when the company experienced high profitability.
Take note that some companies vary their dividend payouts every year, so stockholders should check whether a company is paying a stable dividend yield year after year or merely giving out an unexpectedly high yield that would not be repeated in succeeding years.
In the end, investors should remember to consider the dividend yield when buying stocks. Cash or stock dividends paid out by companies provide additional income and also provide some sort of cushion on capital losses, especially during bearish times like what we are seeing in the current state of the market.
Cash Dividend Yields of other PSE stocks – 2011
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Update (December 12, 2012): High Dividend-Paying PSE Stocks in 2012
Stock dividends is not a good measure since the additional shares issued will result to stock dilution. This means that the total number of shares will increase while the price per share will decrease similar to a stock split.
@ Joel – While I would have to agree with you on stock dividends not being a good measure, it does have a stark contrast compared to a stock split. The latter, will increase the number of shares but will also decrease the value of these shares by the same amount. In other words, in a stock dividend, retained earnings of the company are reduced and there is a pro rata distribution of shares to stockholders. A stock split, on the other hand, increases the shares outstanding but does not lower retained earnings.
I agree with you that retained earnings is affected. But the total stockholder’s equity remains unchanged. Therefore, both stock dividends and stock splits results to the stock dilution. In other words, the difference in accounting does not hide the fact that both do not result to gains for the stockholder.
Very informative discussion Joel and Peso Wise. I agree that Stock Dividend and Stock Split will dilute the book value per share but as far as the stockholder’s equity is concern nothing is change. Now how can we make money out of these? Stock Dividend will give you a greater advantage in a sense that such stocks that you acquire are at zero cost. Your total cost of your stock holdings is the same thus your cost per share is lowered but the market price doesn’t change yet.
Very good insights @Joel and @Louise:disqus . Hope this was a stimulating discussion for anyone following the thread. I guess it doesnt really translate to anything in your bottomline if you try to predict what the market will do. It all depends on how you would react to it. Happy Investing everyone! -PesoWise.com
this seems good. hmmm,, how can a newbie start? what are the preliminary steps?
Wow, thank you for sharing this information. It’s giving me more insights about ways to look at stock investing. Now I realize I should look not only look at capital gains but also at the dividend yield I am getting.
Accdg to COL news, we have SAM stocks that would benefit the release of Gov’t spending on PPP. So keep on investing faithfully on SAM stocks like ALI, EDC, FPH, and MBT.
You can also consider DMC and MPI for it will benefit for infrastructure.
I have invested at COL’s EIP since 2011 thru Bro. Bo’s recommended companies. The idea of SAM is to regularly invest small amount on blue chip stocks and selling them once target price has been reached. This method is designed for retail investors who has a tolerance for moderately risks level of investment bu also opt for a long haul.
Does the broker also get a cut from the dividends? I have 500 shares of a certain bank and they give a dividend of P3.00 per share. If I calculate it right 500 x 3 = P1500. I only receive 300 pesos. Are there any hidden charges on the part of the broker? Should I make a claim?
Hi Pinochio, brokers are not supposed to get any commission or even a fee from the dividends you receive from the company. Based also on your computation, it would be too unfair if you only got P300 from a supposedly P1,500 total dividends. Double check with your broker the actual dividends per share, how many shares you own are really entitled to the dividends, and how much total dividends you should get.
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