Dividend Investing
Dividend Investing is an investment strategy focused on buying the stocks of companies that pay out a portion of their profits to shareholders on a regular basis. In the Philippines, this is often referred to as "investing for cash flow." Unlike day traders who buy and sell rapidly to profit from price changes, dividend investors typically hold stocks for years, treating them like rental apartments that generate quarterly or annual income.
For many Filipinos, this is the psychological bridge between "saving" and "investing"—seeing actual cash hit their account creates a tangible reward loop that encourages further saving.
How It Works
When a Philippine corporation makes a profit, it can either reinvest that money to grow the business or distribute it to owners. That distribution is a Dividend.
Key Dates to Remember
To receive a dividend, you cannot just buy the stock on the day they pay. You must understand the "Ex-Date."
- Declaration Date: The company announces they will pay a dividend (e.g., "₱1.00 per share").
- Ex-Dividend Date (Ex-Date): The cut-off date. You must own the stock before this date to get the money. If you buy on the Ex-Date, you get nothing.
- Payment Date: The day the cash is credited to your stockbrokerage account (COL, FirstMetroSec, etc.).
Types of Dividends in PH
- Cash Dividends: The most common. Cash is deposited directly to your buying power.
- Stock Dividends: The company gives you more shares instead of cash. This increases the number of shares you own but not necessarily the total value immediately.
- Property Dividends: Rare. The company gives shares of a subsidiary (e.g., when ACEN shares were given to Ayala Corporation stockholders).
The "Dividend Darlings" of the PSE
Historically, the Philippine market has distinct sectors known for high payouts:
- Utilities & Telcos: Companies like PLDT (TEL), Globe Telecom (GLO), Meralco (MER), and Aboitiz Power (AP) often yield 4% to 7% because they have stable, predictable cash flows.
- Consolidated Energy: Semirara Mining and Power Corporation (SCC) is famous for paying massive special dividends when coal prices are high, sometimes reaching yields of 10%+, though this is cyclical.
- REITs (Real Estate Investment Trusts): Since 2020, companies like AREIT, MREIT, and RL Commercial REIT (RCR) are required by law to distribute 90% of their distributable income. These have become the backbone of modern Filipino dividend portfolios.
Comparison to Growth Investing
The main alternative to dividend investing is "Growth Investing."
| Feature | Dividend Investing | Growth Investing |
|---|---|---|
| Primary Goal | Cash Flow (Passive Income) | Capital Appreciation (Price Increase) |
| Typical Companies | Mature, stable giants (Utilities, Banks, REITs) | Newer, expanding firms (Tech, Consumer expansions) |
| Risk Profile | Lower Volatility | Higher Volatility |
| The "Win" | Receiving a check every quarter. | Selling the stock for double the price after 5 years. |
| Example (PH) | Meralco, AREIT, PLDT | Jollibee (in early years), DoubleDragon |
Pros and Cons
Like any strategy, it has trade-offs.
Pros
- Passive Income: You get paid regardless of whether the stock market is up or down. This is psychologically soothing during "Bear Markets."
- Inflation Hedge: Good companies tend to raise their dividends over time. If a company raises dividends by 5% annually, your purchasing power is protected against inflation.
- Compound Interest: If you "Reinvest" your dividends (buy more shares with the payout), your portfolio grows exponentially. This is known as the DRIP (Dividend Reinvestment Plan) effect.
Cons
- The Tax Drag: In the Philippines, cash dividends received by citizens are subject to a 10% Final Withholding Tax. This is deducted automatically. (e.g., If the dividend is ₱1,000, you only receive ₱900).
- Limited Capital Growth: High-dividend companies are usually fully grown. You are unlikely to see the stock price double or triple in a short time.
- The "Dividend Trap": Sometimes a stock has a high "Yield" (e.g., 12%) only because its stock price has crashed due to bad business fundamentals. Beginners often buy these "cheap" stocks only to see the company cut the dividend later.
Key Metrics
Before investing, Filipinos should check these numbers on their broker's research page:
- Dividend Yield (%): <math>\frac{\text{Annual Dividend per Share}}{\text{Current Stock Price}}</math>. A healthy yield in the Philippines is typically 4% to 7%.
- Payout Ratio: The percentage of earnings paid out. If a company pays 120% of its earnings as dividends, it is unsustainable and likely borrowing money to pay you. A safe ratio is usually under 80% (except for REITs).
Sources
- PSE Edge - Dividend Declarations
- Bureau of the Treasury - Tax Code on Passive Income
- COL Financial Investment Guide
