TIMING CRITICAL IN BUYING DIVIDEND-PAYING STOCKS

However, timing the purchase of dividend-paying stocks is the hard part for investors, who worry that the dividends might not be worthwhile compared to the bargain prices of XD (excluding dividend) stocks.

An Asia Plus Securities study on dividend-paying stock price changes between 2004 and 2008 found that investors gained the highest returns in both capital gains and dividends when they bought dividend-paying stocks two months ahead of the XD sign being posted and unloaded them one to two weeks after the XD posting.

According to the brokerage's research paper, "Dividend Plays Strategy," the average return on 11 big-market cap and high-dividend stocks over the past five years was 2.2 per cent when selling the stocks on the XD date; 2.3 per cent when unloading one day after the XD date; 2.5 per cent when selling one week after the XD date; and 2.9 per cent when selling two weeks after the XD date. This is based on the fact that investors scooped up these stocks two months before the XD date.

The probability of these shares offering positive returns when bought a couple of months prior to the XD date and sold one week after was 59 per cent. Selling two weeks after the XD date, the probability was 66 per cent.

These stocks were PTT Chemical (PTTCH), Glow Energy (GLOW), Siam Makro (MAKRO), Banpu (BANPU), Charoen Pokphand Foods (CPF), BEC World (BEC), Siam Cement (SCC), Siam City Cement (SCCC), Advanced Info Service (ADVANC), Thai Union Frozen Products (TUF) and Krung Thai Bank (KTB).

In the study, PTTCH yielded the highest return at 9.12 per cent when sold either one and two weeks after the XD date. The likelihood of providing a return from 2004 to 2008 was 100 per cent.

GLOW ranked second spot at 6.5 per cent when selling one week after the XD date and 5.35 per cent two weeks after the XD date.

MAKRO offered a return of 4.8 per cent when unloaded one week after the XD date and 6.66 per cent after two weeks.

BANPU yielded 4.21 per cent when sold one week after XD and 5.58 per cent for after two weeks.

SCCC provided a return of 0.47 per cent and 1.71 per cent when sold one and two weeks after XD, respectively.

SCC returned of 0.17 per cent and 0.32 per cent after one and two weeks, respectively.

However, BEC offered a negative return of 0.52 per cent after one week and a positive return of 3.72 per cent after two weeks. ADVANC, TUF and KTB offered negative returns both one and two weeks after the XD date.

If investors bought MAKRO, BEC, CPF and TUF only two weeks before XD and sold them one or two weeks after, they saw smaller returns than if purchased two months ahead of the XD date.

This result was based on average returns of large market cap stocks over the past five years.

The paper stated that MAKRO yielded 6.84 per cent when sold one week after the XD date and 8.75 per cent after two weeks.

BEC yielded 3.86 per cent after one week and 8.40 per cent after two weeks.

CPF offered a return of 3.91 per cent when unloaded one week after XD and 3.20 per cent after two weeks.

TUF returned 3.66 per cent and 2.34 per cent after one and two weeks, respectively.

Interestingly, ADVANC, SCC and KTB offered the best returns when purchased one week or less ahead of the XD date.

The paper explained that prices of these stocks always rally in January, while they post XD signs in March and April, so they do not provide high returns when purchased two months ahead of XD.

If investors bought MAKRO, BEC, CPF and TUF only two weeks before the XD date and sold them one or two weeks after XD, they offered lower returns than if purchased two months ahead of the XD date.

This result was also based on average returns of large market cap stocks over the past five years.

The paper stated that MAKRO provided 6.84 per cent when sold one week after the XD date and 8.75 per cent two weeks after.

BEC yielded 3.86 per cent when sold one week after the XD date and 8.40 per cent two weeks after XD.

CPF returned 3.91 per cent when a week after XD and 3.20 per cent two weeks after.

TUF returned 3.66 per cent and 2.34 per cent one and two weeks after XD, respectively.

Interestingly, ADVANC, SCC and KTB offered the best returns when purchased one week or less before the XD date.

The paper explained that prices of these stocks always rally in January in line with the SET index, while they post XD signs in March and April, so they do not provide high returns when purchase two months ahead of the XD date like the others.

Take ADVANC as an example. Investors gained 2.64 per cent in returns if they bought the stock a day ahead of the XD date and sold them one week after the XD date. There was a 60-per-cent possibility that investors would gain from buying and selling ADVANC during the period based on the five-year track record.

The paper also stated that 17 smaller stocks offered attractive returns when purchased two months before the XD date and sold one or two weeks after the date.

Those stocks are: GFPT; Somboon Advance Technology; Asian Property; Nonthavej Hospital; LPN Development; Chumporn Palm Oil Industry, SC Asset Corp; MCS Steel; Sahamit Machinery; Thai Metal Trade; Rojana Industrial Park; Ticon Industrial Connection; Robinson Department Store; Property Perfect; Noble Development; Thai Stanley Electric; and MK Real Estate.

GFPT offered 20 and 21 per cent when sold one and two weeks after the XD date, respectively.

LPN yielded 18.9 per cent when sold one week after the XD date and 16.3 per cent two weeks after the XD date.

Somboon returned 17.2 per cent and 16.6 per cent one and two weeks after XD, respectively.

These stocks offered lower return if purchased two weeks prior to the XD date and sold one or two weeks after the XD date.

Based on the fact that investors have snapped up LPN stock two weeks ahead of the XD date over the past five years, it yielded 16.8 per cent when sold a week after XD and 14.1 per cent two weeks after XD.

LPN is scheduled to post its XD sign in April, while the other stocks will do so between March and May.