How to avoid Dividend Traps in high dividend stocks

Thansettakij•Economy•17d ago

Reader Briefing

Investors are cautioned against 'Dividend Traps' where high yields are caused by falling stock prices rather than business strength.

•A Dividend Trap occurs when a stock's yield increases because the share price drops while dividends remain the same.
•The Payout Ratio is a key tool to verify dividend sustainability; a ratio exceeding 100% indicates the company pays more than it earns.
•The Stock Exchange of Thailand's SETHD index filters for 30 stocks with consistent dividends for 3 years and a Payout Ratio not exceeding 100%.

•Dividend Yield is calculated by dividing the dividend per share by the share price, expressing the return as a percentage.
•A high Dividend Yield can be a warning sign of hidden problems if the yield increases because the stock price has plummeted.
•A Payout Ratio over 100% is often unsustainable because the company may need to use reserves or loans to pay dividends.
•The SET High Dividend 30 Index (SETHD) reviews its list of 30 stocks from the SET100 every June and December.
•Research from the Stock Exchange of Thailand indicates that average Thai stock dividend returns are higher than fixed deposit interest rates.
•Investors wishing to receive dividends must purchase shares before the Ex-Dividend (XD) date and hold them across that date.
•Dividends received are subject to a 10% withholding tax by law.

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Stock Exchange of Thailand(ตลาดหลักทรัพย์แห่งประเทศไทย)ℹ️

The organization providing data on Payout Ratios and research on average Thai stock dividend returns.

SETHD

The SET High Dividend 30 Index that filters 30 stocks from the SET100 based on dividend consistency and Payout Ratio.

The group of stocks from which the SETHD index selects its 30 constituents.

1DIV

A fund that invests based on the SET High Dividend 30 Index.