Dividend Investing in ASX
An investment in an ASX stock means you own part of that company and are therefore entitled to a share of its profits in the form of dividends.
Dividends are funded from the company's long-term cash flows and profits each year. They are cash payments distributed to shareholders at regular intervals, with semiannual payments (every six months) the most common in Australia. However, dividends can also be paid monthly, quarterly, or annually, and even on a one-off basis in the case of 'special dividends'.
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Which dates should I pay attention to?
There are three major dates for investors to look forward to each year.
1. Declaration date is usually the same day when a company releases its half-yearly or annual results to the market through an ASX release, containing the dividend amount to be paid per share, as well as the ex-dividend date, record date, and payment date.
2. Ex-dividend date is the first trading day upon which an upcoming dividend isn't included in a share's price. If you buy the stock before that date, you get the dividend. If you buy after, you won't get the dividend.
3. Record date is when a company makes a list of all shareholders to allocate dividend payments.
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How often are dividends paid?
Most ASX companies pay dividends twice a year. The dividends are usually called the 'interim dividend' and the 'final dividend'. Some companies pay a small interim dividend but a large final dividend, while others pay an equal amount. The extra dividends paid by companies are typically classified as a 'special dividend'.
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How to evaluate dividend stocks?
Now that you've got a glimpse of how dividends work, it's time to learn about some of the key metrics of dividend stock evaluation.
Dividend yield
The dividend yield is the dividend a company pays out annually and is subject to its stock price. The higher the yield, the better for income investors, but only up to a point. Abnormally high yields can indicate heightened levels of risk. The dividend growth rate should be in line with the company's long-term earnings.
Payout ratio
The payout ratio refers to the dividends paid out as a percentage of a company's total earnings. A high payout ratio, notably exceeding 100%, could lead to questions regarding long-term sustainability. In contrast, a low payout ratio could indicate that a company is reinvesting most of its earnings to expand its businesses. In other words, investors should be critical of the payout ratio, whether it's high or low.
Dividend history
Corporations with the best long-term dividend payment records typically maintain a stable payout ratio for many years. Two questions can help investors evaluate companies: Does the company's dividend distribution increase continually? How long has the corporation been paying dividends to its stockholders?
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How to conduct dividend investing
（1）Aim for a high dividend yield
Investors with a short-term horizon can focus on slow-growing, established companies with a large cash flow that could pay substantial dividends.
（2）Seek for high-growth dividends
Long-term investors should concentrate on buying stocks of proliferating firms that pay lower-than-average dividends. The returns might look small in the near future, but the dividend yield should steadily increase as the company expands.
1. Declaration date is usually the same day when a company releases its half-yearly or annual results to the market through an ASX release, containing the dividend amount to be paid per share, as well as the ex-dividend date, record date, and payment date.
2. Ex-dividend date is the first trading day upon which an upcoming dividend isn't included in a share's price. If you buy the stock before that date, you get the dividend. If you buy after, you won't get the dividend.
3. Record date is when a company makes a list of all shareholders to allocate dividend payments.
Most ASX companies pay dividends twice a year. The dividends are usually called the 'interim dividend' and the 'final dividend'. Some companies pay a small interim dividend but a large final dividend, while others pay an equal amount. The extra dividends paid by companies are typically classified as a 'special dividend'.
Now that you've got a glimpse of how dividends work, it's time to learn about some of the key metrics of dividend stock evaluation.
Dividend yield
The dividend yield is the dividend a company pays out annually and is subject to its stock price. The higher the yield, the better for income investors, but only up to a point. Abnormally high yields can indicate heightened levels of risk. The dividend growth rate should be in line with the company's long-term earnings.
Payout ratio
The payout ratio refers to the dividends paid out as a percentage of a company's total earnings. A high payout ratio, notably exceeding 100%, could lead to questions regarding long-term sustainability. In contrast, a low payout ratio could indicate that a company is reinvesting most of its earnings to expand its businesses. In other words, investors should be critical of the payout ratio, whether it's high or low.
Dividend history
Corporations with the best long-term dividend payment records typically maintain a stable payout ratio for many years. Two questions can help investors evaluate companies: Does the company's dividend distribution increase continually? How long has the corporation been paying dividends to its stockholders?
（1）Aim for a high dividend yield
Investors with a short-term horizon can focus on slow-growing, established companies with a large cash flow that could pay substantial dividends.
（2）Seek for high-growth dividends
Long-term investors should concentrate on buying stocks of proliferating firms that pay lower-than-average dividends. The returns might look small in the near future, but the dividend yield should steadily increase as the company expands.
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