Many new investors don’t know what a dividend is in relation to an investment, especially one that involves a single stock or mutual fund. A dividend is when a publicly listed firm distributes a portion of its profits to qualifying owners.
Dividend stocks are a fantastic option if you want to diversify your investment portfolio.
But with the wide range of dividend stocks available in the Philippines, you can feel overly confused. You require this tutorial for precisely this reason.
We’ll list the top dividend stocks in the Philippines on this page for your consideration.
How Do Dividend Stocks Work?
Dividend stocks, as the name suggests, are those that distribute a portion of their regular earnings to shareholders. These established, reliable businesses typically have a strong track record of consistently paying dividends over time.
For instance, if Company A pays a Php5 annual dividend per share, an investor who owns 1000 shares will receive a Php5,000 dividend payment.
Please read: WHAT IS THE BEST TIME TO INVEST IN STOCKS?
How can you obtain or submit a dividend claim?
Dividends are paid in cash or stocks in the Philippines. If you are qualified to receive dividends, your stockbroker will typically notify you.
It will be added to the account holder’s trading cash balance if it is paid in cash. Stock shares will appear in your portfolio in the interim.
Facts to consider regarding Dividends
Are you brand-new to the dividend investing industry? You need to be familiar with the words listed below.
Ex-div date
Any owner of a share at the end of the trading day before the ex-dividend date will receive a dividend. You won’t be eligible for any dividends if you purchase on the ex-dividend date.
Due date
The payment date for dividend yields is indicated below.
Data Date
Dividends won’t be paid to anyone who wasn’t registered as stock owners as of a certain date.
Yield on dividends
This is the ratio between the stock’s current price and the annual dividend payments made by the corporation. Divide the annual dividend by the stock price.
You will earn more money as a dividend the greater the dividend yield is.
To determine which businesses to invest in, however, merely examining the dividend yield is insufficient. In order to fully understand a company’s health, you should look at more than just the div yield.
The ratio of dividend payments
This represents the percentage of the company’s earnings that are distributed to shareholders as dividends. Divide the company’s dividends per share by its earnings per share to obtain this.
Examining this ratio is crucial because it reveals how much of a company’s profit is distributed to shareholders in comparison to how much is kept to support and expand the business.
Remember:
It’s also vital to remember that some businesses don’t distribute dividends. Remember that investors might profit from dividends or from capital gains (selling equities that have increased in value).
As a result, some businesses decide to focus on expansion rather than paying dividends. This is common with new companies, as well as established companies that have aggressive expansion targets.
Their gains won’t be distributed; rather, they’ll be reinvested for future growth and appreciation. This type of strategy usually attracts investors who focus on stock prices.
Pros and Cons of Investing in Dividends
Like any other type of investment, dividend investing has advantages and disadvantages. We’ve included the benefits and drawbacks of this form of investment below to help you decide if it’s appropriate for you.
Pros
You can get passive income thanks to it.
Dividend stocks are ideal for you if you want to use investing to generate more passive income. It functions exactly like bank account interest, with the possibility for higher profit.
The majority of businesses also make an effort to keep their dividends regular because this is one of the most important things that keeps their stock price competitive, so expecting quarterly distributions from firms is a wise decision.
Compound interest can be used to your advantage to grow your wealth.
Using your earnings to make additional money is referred to as compounding.
Given that you won’t need to make any more investments, it is one of the finest strategies to enhance your wealth. Simply allow your income to take care of the work for you.
When it comes to dividend investing, you can buy more stocks using your dividend income. As a result, you will eventually make more money because every stock you buy will pay you a dividend.
Your returns will increase quickly if you use exponential growth as a strategy.
By selling and receiving dividends, you can make money.
You can benefit from the different ways that dividend stocks can bring in money by taking advantage of these strategies. For instance, you may receive regular payouts and turn a profit.
Selling your investments for more money is an additional method for making a profit. These businesses’ stock prices will increase over time because they are already reputable and established.
Cons
There are still dangers present.
There are still dangers associated with dividend stocks, just like there are with other types of investments.
Companies’ dividend payout ratios show how much of their earnings are distributed to shareholders as opposed to how much they retain.
The truth is that if a company’s dividend payout is too large, it won’t be sustainable for them and may force the company to reduce or stop paying dividends in the future.
Less opportunity exists for significant profits.
This disadvantage of investing should be known to every investor. There will eventually be a limit on your refunds.
Even the best-performing equities in the world won’t return 100% of your investment in a single year, despite the possibility that you will still earn a sizeable passive income.
Following a high-growth stock strategy could result in enormous losses or fantastic gains.
Investing in stocks with a high dividend yield won’t produce the same growth as the prior example. Additionally, dividends are susceptible to losing value over time as a result of shifts in the business’s strategy.
There is a mismatch between dividend increase and firm performance.
The gap between corporate growth and dividend payments to investors is another significant drawback of dividend investment.
Remember that common stocks are not obligated to pay dividends regularly and may choose to stop doing so at any time. This typically happens when businesses are having trouble maintaining a steady cash flow.
But that isn’t the only instance of it. Even if a company is doing well, its dividends may be reduced due to adjustments made to its capital allocation strategy.
Companies can think that using cash for acquisitions or debt repayment would be preferable to rewarding shareholders.
Best Dividend Stocks for Philippines Investors in 2022
- AllDay Marts Inc (ALLDY)
- DMCI Holdings, Inc. (DMC)
- SM Investments Corp. (SM)
- Ayala Corporation (AC)
- SM Prime Holdings (SMPH)
- Semirara Mining and Power Corporation (SCC)
- SPC Power Corporation (SPC)
- LT Group (LTG)
- International Container Terminal Services (ICT)
- Jollibee Foods Corporation (JFC)
- Premiere Leisure Corporation (PLC)
- GMA Network (GMA7)
- Panasonic Manufacturing Philippines (PMPC)
Conclusion
Dividend investment is no different from other investing strategies in that it entails risk. The fact that dividends are never guaranteed poses the biggest danger. Companies can and often do cut or even stop paying dividends.
Some very well-known, venerable stocks have done this during the Covid-19 pandemic.
There are other, more subtle hazards, though. Any investor should always prioritize diversification, and someone who places an excessive amount of emphasis on dividends is likely to overlook certain industries and business categories that are essential for effective diversification.
For instance, young, rapidly expanding tech companies typically don’t pay dividends.
