Dividends are very important to stock investors . It is one of the factors that reflect the performance of the business, helping investors to evaluate the stock price so that they can shape their own investment strategy. This article will provide a complete concept of what dividends are, how to calculate dividends and other issues related to dividends.
What are dividends? Dividend classification
Dividends are part of the after-tax profits that a joint stock company distributes to its shareholders. Dividends can be paid in cash or in shares.
The amount paid for dividends will be announced in the General Meeting of Shareholders of the company in which you buy shares. I take the example of Vietnam Foreign Trade Bank (VCB), for example:
Photo: Vietcombank announced the dividend payout ratio in the General Meeting of Shareholders
VCB's profit after tax in 2019 is more than 18 trillion dong. This part of profit will be paid for many items as you can see from items 4 to 9. In which dividend payment is VND 2,967 billion, accounting for about 16.4% of total profit after tax.
Classification of dividends
There are two basic ways of paying dividends: Cash Dividends and Stock Dividends.
What is a cash dividend?: A way of distributing profits to shareholders in cash. This form has the advantage that Shareholders receive actual money from the company's business activities. But its drawback is that it reduces a company's reinvested capital flow, which in turn can slow its growth. Cash dividends are also known by other names such as: Cash dividend payment, Cash dividend advance, etc.
Stock dividends: Also known by other names such as stock bonuses, stock dividends. This is essentially a form of dilution of value by issuing more shares. These additional shares will be paid to shareholders proportionally. The profit will be retained by the company for reinvestment.
For example: A company declares a dividend to its shareholders at the rate of 10% (or alternatively, it pays a stock dividend at the ratio of 10:1, or if the shareholder owns 10 shares, then will receive 1 bonus share). The market price of that company's stock is 30,000 VND/share. After the division, 1 share price of 30,000 VND is divided into 1.1 shares which are also valued at 30,000 VND. So 1 new share will be priced at 30,000/1.1=27,300 VND.
The advantage of this form of dividend payment is that the company has more money to reinvest. However, that is only shown on the books. This form is only really effective when businesses use capital well and the market is going up (bull market).
How to look up dividend payment information and dividend payment schedule
Investors can look up dividend payment information of the enterprise through 2 documents.
- Resolution of the previous year's General Meeting of Shareholders (Plan)
- Resolution of the current year's General Meeting of Shareholders (Implemented)
Firstly, in the Resolution of the Annual General Meeting of Shareholders, the enterprise has a plan to pay dividends for that year. Below is the Resolution of the Annual General Meeting of Shareholders of Hai Phong Thermal Power Company (HND) 2019. According to the Resolution, the company intends to pay a dividend equal to 7.5% of charter capital.
Secondly, in the Resolution of the current year's General Meeting of Shareholders (2020), the enterprise will finalize the method and rate of dividend payment based on the profit of the previous year (2019). Below is the Resolution of the Annual General Meeting of Shareholders of Hai Phong Thermal Power Company held on June 5, 2020. According to the Resolution, the company decided to pay dividends based on the profit in 2019 of 16% of charter capital.
Photo: Documents of the General Meeting of Shareholders of Hai Phong Thermal Power Company approving the plan to pay a cash dividend equal to 16% of charter capital
Third , you should note that at the AGM of HND, the dividend was paid at 16% of charter capital, but the company may not pay 1 time. As in the case of this Hai Phong Thermal Power Company, in the Resolution of the Board of Directors dated June 15, 2020 decided to pay the first 2019 dividend of 11% of charter capital. And usually when the company announces the Board Resolution, the dividend is about to be distributed.
Photo: Minutes of the Board of Directors meeting of Hai Phong Thermal Power Company approving the first payment of 2019 dividend of 11% of charter capital
Fourth, announcement from the Securities Depository Center (VSD). Notice of Final registration date and closing list of shareholders to receive dividends. The listed company will go to the Registration Office of the Securities Depository Center to complete the procedures. The file includes resolutions and minutes of the Annual General Meeting of Shareholders, resolutions and minutes of the Board of Directors meeting and a number of other applications. When approved by the Depository Center, the listed company and the exchange will receive a notification. Information will be published on VSD's website.
Photo: announcement from VSD about the final registration date and closing the list of shareholders to receive dividends.
Thursday , after the Securities Depository Center announced that it had approved the dividend payment plan of the listed company. At the same time, the listed company must also send a written approval of dividend payment to the Stock Exchange. The exchange will make an announcement to the whole market. The most important content of this notice is the Ex-Exempt Date (the date on which the share price will be adjusted downward if cash dividends are paid or the price divided if stock dividends are paid).
The most popular ways to distribute dividends today
Currently, listed companies can choose one of four types of dividends as follows:
- Cash dividend
- Dividend in shares
- Dividends in both cash and shares
- No division (may be because the company is losing or compensating for accumulated losses)
How and at what rate to pay dividends is approved by the Annual General Meeting of Shareholders on the basis of the audited profit after tax.
For investors who are pursuing the strategy of "receiving dividends", it will be suitable for companies with stable orientation and large "Cash dividend / Profit after tax" ratio.
In contrast, companies with strong growth ambitions in the future have a very small ratio of "cash dividends to profit after tax", most of the profits are retained for reinvestment. These companies will be suitable for investors or hedge funds that prefer a growth strategy. In fact, some listed companies do not even pay cash to shareholders.
Cash dividend calculation: Dividend calculation is always based on the original par value of the stock. According to current regulations of Vietnam, the original face value is 10,000 VND. Many people still mistakenly believe that the payment of dividends is based on the market price of the stock.
For example, if HND pays a cash dividend of 16%, we understand that 16% of VND 10,000 is VND 1,600, not 16% of the market price of HND shares.
How to calculate stock dividends: If a business pays a stock dividend, we often see a pro-rated announcement like. Company X pays a stock dividend in 2020 at the ratio of 100:30, for example. We can understand that, if you are holding 100 shares of that company, you will receive another 30 shares. And the stock price will be adjusted, you can read more articles: Adjusted price in ex-rights day to better understand.
What is another name for the dividend payout ratio?
For cash dividends:
When paying cash dividends, the announcement documents usually indicate a percentage of the par value or charter capital. In essence, they are the same. Because charter capital = Par value x Number of shares.
Photo: PVI pays 2019 dividend in cash at the rate of 22.5% of par value
Currently, according to Vietnam's securities law, the par value of shares when listed is 10,000 VND. So for example, a company guarantees to pay a cash dividend of 20% of par value or 20% of charter capital , we can understand that they pay 2000 VND for each share you own.
For stock dividends:
Calling when paying stock dividends usually has 2 types. The first is proportional. For example, if MWG pays a 30% stock dividend, it means that shareholders will receive 3 more shares if they own 10 MWG shares. The second is the call to scale. for example, FPT company pays a stock dividend at the ratio of 1000 : 280. We will understand how to calculate the dividend in this case that if a shareholder owns 1000 FPT shares, he will receive another 280 shares. .
What is the number of fiscal year dividends and calendar year dividends?
Number of dividend payments in the fiscal year: According to the Securities Law, the Annual General Meeting of Shareholders only announces the type of dividend payment and the dividend payout ratio in the fiscal year. As for the division into several installments, the time to close the list of shareholders, the time of payment is decided by the Board of Directors. In fact, usually listed companies will pay dividends in 1 or 2 times per year, very few companies choose to pay 3 or 4 times because it will take a lot of time to file.
Number of dividend payments in the calendar year: Note that the fiscal year and the calendar year may or may not overlap. But the number of dividend payments in the calendar year is different from the number of dividend payments in the fiscal year. After the end of the fiscal year, the listed company will publish the audited financial statements and the General Meeting of Shareholders will approve the report on the dividend payment plan of that fiscal year. However, the general meeting of shareholders will be held next year. For example, the dividends in calendar year 2020 that shareholders will receive will be based on the business results of the audited fiscal year 2019 and may be divided into installments. Usually, the dividend payment will be announced on a calendar year basis for easy tracking.
Photo: Vietnam National Petroleum Group, stock code PLX. The 2020 General Meeting of Shareholders agreed to pay a dividend for the fiscal year 2019 of 30%. The roadmap for implementation in the calendar year 2020 is 2 times of paying dividends of 20% of par value and 10% of par value, respectively.
In short, in this article you need to know:
- What are dividends? Classification of cash dividends and stock dividends
- How to look up dividend payment information and dividend payment schedule
- Dividend distribution and cash dividend calculation principles
- Ways to call dividends
- Number of dividends for the fiscal year and the number of dividends for the calendar year
Above is the entire article on dividends and how to calculate dividends when investors hold shares of any company. If you have any questions, you can contact me or leave a message below the article, I will contact you as soon as possible to support you.
