[Beginner's Guide] When the Cold Wind Blows, Invest in 'Baedangju'... Baedangju Investment A to Z

[Asia Economy Reporter Kwon Jaehee] "Buy dividend stocks when the cold wind blows"

This is a proverb that stock investors have probably heard at least once. These days, not only the season but also the stock market situation is experiencing a cold wind, making it seem like a good time to invest in dividend stocks. So, what are the high-dividend stocks that pay large dividends, and how should you invest in them? Let's find out.

Looking at the TOP 10 Dividend Yields...

To invest in dividend stocks, the first priority is to find stocks with high dividend yields, right? Let's just search for 'dividend yield' in the search bar. As of 10:37 AM on October 8, 'Vietnam Development 1' boasts the highest dividend yield at an impressive 22.73%. Following are Hyosung TNC (17.95%), eCredible (15.50%), Korea Financial Group Preferred Shares (13.84%), and Korea Financial Group (12.55%). You can see that many of these are financial stocks. Financial stocks are not typically the kind that 'skyrocket' quickly, but they are representative dividend stocks favored by investors seeking stable dividends.

Can investing in 'high-dividend stocks' lead to an empty account?

We have looked at some dividend stocks. Now, the next step is to set criteria for choosing which companies to invest in, right? You might think, "Just pick companies with high dividend yields." However, when investing in dividend stocks, you need to carefully examine not only the dividend yield but also the stock price fluctuations. If the dividend yield is 22% but the stock price plunges 50%, you might end up with an empty account just for receiving some dividends.

Another point to be cautious about is the sustainability of dividends. Just because a company paid 10,000 KRW in dividends last year doesn't guarantee it will pay the same amount this year. Last year, the company might have been profitable and paid dividends, but this year it could be in the red and might not pay dividends. While you can refer to the dividend yield based on last year's dividends, it is necessary to verify this information.

What should you be careful about when investing in dividend stocks?

[Image source=Reuters Yonhap News]

First, check the past dividend payments. It is important to verify whether the company has consistently paid high dividends in the past.

Second, look at the expected net profit for this year. The net profit should increase compared to last year to ensure you receive at least as much dividend as last year. If profits decrease or the company incurs losses, past dividends become meaningless.

Third, timing is important. For high-dividend companies, it is best to invest by at least October. Often, buying demand aiming for dividends flows in during November and December, causing stock prices to rise. Since rising stock prices reduce the attractiveness of dividends, it is better to select and buy stocks before November. Now you understand why the proverb says to invest in dividend stocks when the cold wind blows.

Lastly, if you invest in dividend stocks, you need to know until when you must hold the stocks to receive dividends. For example, if the domestic stock market's closing day is December 30, you must hold the stocks until two days before the closing day to receive dividends. In Korea, stocks are not settled immediately after selling but two days later, so the shareholder registry is finalized two days before the closing day. In other words, investors holding stocks on December 28 are finally confirmed as shareholders for that year. (Since the closing day changes every year, please be sure to check.)

Sometimes selling is more profitable than dividends?

You might have heard of the term 'ex-dividend date' when investing in dividend stocks. The day before the market closes is called the ex-dividend date, which is the day the right to receive dividends disappears. The stock market reflects the dividend yield on the ex-dividend date, causing the stock price to drop accordingly.

For example, if Samsung Electronics has a dividend yield of 2%, the stock price typically opens about 2% lower on the ex-dividend date. It is not always exactly 2%, but assuming no other variables such as the previous day's US stock market situation, it is common for the stock price to open down by the dividend yield amount.

[Image source=Reuters Yonhap News]

Therefore, companies that pay high dividends often see their stock prices plunge on the ex-dividend date. The stock price tends to drop on the day the dividend rights expire, reflecting the large dividend payout.

Because of this, if the stock price has risen significantly due to dividend expectations until the shareholder registry is finalized, it might be wiser to realize gains by selling rather than holding for dividends. Stock prices often decline not only on the ex-dividend date but also until mid-January.

Typically, dividends are decided between January and March and paid to the previous year's shareholders in April.

These days, the stock market is struggling, making it hard to generate profits. How about investing in dividend stocks during such times? We support the wise investments of all beginner investors.

Editor's Note [Beginner's Guide] is a smart investment guide for 'Joorini (stock + beginner)'. We will kindly and easily explain stock stories unfamiliar to beginners.

This content was produced with the assistance of AI translation services.