With the stock market "cold," will dividends warm the hearts of investors?

Stock market is quiet, dividends "boost" share prices.

Yesterday (August 23), the stock market closed slightly higher, with the VN-Index rising 0.2% to 1,285.32 points and the HNX-Index adding 0.67% to 240.07 points. However, the number of declining stocks was higher, and market liquidity remained low. On the HOSE exchange, over 16,839 billion VND was traded, while the HNX exchange saw over 1,320 billion VND. Overall, both the VN-Index and the HOSE market capitalization are at levels similar to those of over three months ago. Trading value, in particular, has continuously decreased, and in several sessions in July, the trading value on the HOSE exchange fell below 10,000 billion VND – the lowest since the end of 2023 – discouraging many individual investors.

Many individual investors are not interested in dividends when buying stocks.

Nevertheless, some stocks are still attracting attention due to high dividend payouts. For example, Vietnam Gas Corporation (stock code GAS) will finalize the list of shareholders on September 16th to pay the 2023 cash dividend at a rate of 60%, equivalent to 6,000 VND per share. With nearly 2.3 billion shares outstanding, the total amount the company plans to distribute is 13,780 billion VND. At the same time, GAS shareholders will also receive shares issued by the company to increase capital at a ratio of 50:1, meaning that for every 50 shares owned, shareholders will receive an additional 1 share. In the past month, the price of this stock has increased by 10%, despite many blue-chip stocks on the HOSE exchange declining.

Investment organizations and funds typically pay more attention to earnings per share (EPS) than to the amount of dividends distributed. A company with a high EPS but low dividends may still be highly valued by investment funds and organizations because the company will retain funds for future expansion and increase its value. Conversely, if a company distributes all its profits to shareholders, it suggests a lack of a plan for using cash flow and a direction for company growth, which is not necessarily good for the long term.

Associate Professor Dr. Nguyen Huu Huan, University of Economics Ho Chi Minh City

Not only GAS, but many other companies also pay dividends at higher rates, exceeding 100% (equivalent to more than 10,000 VND/share). For example, Vietnam Electric Cable Joint Stock Company (stock code CAV) paid a dividend of 100% last year, and this cash dividend rate was also paid in 2022. Currently, CAV's share price is 69,900 VND. If the dividend remains at 100% (equivalent to 10,000 VND/share), the dividend yield is equivalent to 14.5%, far exceeding savings interest rates. Another example is Binh Minh Plastic Joint Stock Company (stock code BMP), which has maintained a dividend payout rate of over 100% for four consecutive years from 2020 to 2023 and forecasts that this high dividend payout rate will continue until 2025. Based on the current share price of 105,200 VND, the dividend yield is equivalent to 9.5%, higher than savings interest rates. Meanwhile, Son La Sugar Joint Stock Company (stock code SLS) also paid a cash dividend of 150% in 2023, equivalent to 15,000 VND per share. However, compared to the current share price of 195,500 VND, the dividend yield is only about 7.6%...

Only institutional investors are interested in dividends.

Although dividend payouts by many listed companies have a positive impact on stock prices in some trading sessions, especially for those with high dividend yields, this is not a crucial factor for many individual investors when deciding to buy and hold shares. According to current regulations, the stock price will be adjusted accordingly. For example, if CAV is currently priced at 69,900 VND, and pays a 100% cash dividend (equivalent to 10,000 VND/share), the price will drop to 59,900 VND on the ex-dividend date. Many investors may choose to buy shares on the ex-dividend date at a lower price instead of buying earlier, as they have to wait a while for the dividend payment. Many stocks, even after price adjustments, will immediately rebound to their pre-dividend levels. In that case, investors who held the shares earlier will fully profit from the dividend.

Mr. Phan Dung Khanh, Director of Investment Consulting at Maybank Investment Bank, believes that most individual investors in Vietnam are not concerned about dividends. Investors have a short-term trading mentality, not wanting to hold shares long-term, so they only focus on assessing whether a stock has the potential to increase in price and by what margin in the next few weeks. This leads to a situation where even loss-making companies that don't pay dividends still attract many investors, driving up their share prices. Conversely, many companies that pay dividends regularly every year see their share prices barely increase, or sometimes even decrease.

Conversely, dividends are a factor that institutional investors and investment funds consider, along with other information, when choosing stocks to buy. Therefore, the annual financial reports of institutional investors and investment funds always include a financial income item, which includes dividends from investments made during the year. However, excessively high dividend payouts are not encouraged by institutional investors. Whether a company retains cash flow for development and expansion is crucial for institutional investors to evaluate when planning to hold stocks long-term.

Associate Professor Nguyen Huu Huan from the University of Economics Ho Chi Minh City also agrees with the assessment that many domestic individual investors are not interested in dividends from listed companies. This is partly because most companies pay low dividends, ranging from 10-20% (equivalent to 1,000-2,000 VND/share). For stocks priced at 40,000-50,000 VND or more, this dividend payout is too low compared to the amount invested in purchasing the shares. Only a few companies offer "super dividends," which are usually concentrated among large shareholder groups or small businesses whose shareholders are primarily employees. Furthermore, a large part of the reason is that individual investors still prefer short-term trading to profit from price differences.

"Large investors and investment funds are more interested in dividends than individual investors. However, institutions and investment funds usually pay more attention to earnings per share (EPS) rather than the amount of dividends distributed. A company with a high EPS but low dividend payout may still be highly valued by investment funds and institutions because the company will retain funds for expansion and future growth, thus increasing the company's value. On the other hand, if a company distributes all its profits to shareholders, it shows a lack of a plan for using cash flow and a direction for company development, which is not necessarily good for the long term," Associate Professor Dr. Nguyen Huu Huan shared.

Dividends are paid at a price higher than the share price.

Most large companies have recently paid low dividend rates, typically ranging from 10% to 30%. However, the companies that pay exceptionally high dividends are smaller companies with relatively low trading volumes. For example, Phan Thiet Garment Export Joint Stock Company (stock code PTG) paid an interim dividend for the first quarter of 2024 in cash at a rate of 50%, equivalent to 5,000 VND per share. Notably, the dividend paid by PTG to shareholders is 10 times the share price traded on the UPCoM exchange at the time of the dividend payment (500 VND/share). Similarly, 397 Joint Stock Company (stock code BCB) also paid a cash dividend for 2023 at a rate of 29.19% per share (2,919 VND per share). This dividend is more than four times higher than the share price, which was at 700 VND…

Source: https://thanhnien.vn/chung-khoan-lanh-co-tuc-co-lam-am-long-nha-dau-tu-185240823154645847.htm