1. What are dividends?
The 2020 Enterprise Law states that dividends are net profits paid per share in cash or other assets. They are a reward for investors and represent a business's profit after deducting expenses and financial obligations.
2. Forms of dividend payment
Dividend payments can take various forms, depending on the decision of the company's Board of Directors. Below are two common dividend payment methods applied by most companies.
- Cash dividends: Dividends are paid in Vietnamese Dong through specified payment methods. The dividend rate is calculated on the par value of VND 10,000 per share, not based on the market price. For example, on March 18, 2024, at the Annual General Meeting of Shareholders, Vinamilk announced a cash dividend payment at a rate of 9%. This means investors will receive VND 900 for each VNM share.
- Stock dividends: The company issues additional shares to shareholders as a dividend payment. Issuing stock dividends does not change the owner's equity or the shareholding ratio. The company does not need to perform new issuance or offering procedures. However, the charter capital will be adjusted to increase according to the total par value of the stock dividends within 10 days of payment completion.
3. Pros and cons of different dividend payment methods
Each dividend form has its pros and cons, influencing investors' decisions.
- Cash dividends: The biggest advantage is that shareholders receive direct cash, providing safety and stability. It also reflects the company's healthy and transparent financial situation. However, investors must pay 5% personal income tax on this dividend. Additionally, cash payments reduce the company's cash reserves, potentially leading to liquidity challenges when it needs to expand its business operations.
- Stock dividends: Paying dividends in shares allows the company to retain cash for reinvestment or financial difficulties. This method also helps increase the liquidity of shares in the market. However, investors do not receive shares immediately, which may cause some to feel uneasy as there is no fixed amount of cash in hand, and the value of the received shares may fluctuate in the future. Furthermore, the waiting period of 2-3 months before the shares can be traded often deters investors from choosing this method.
4.Dividend Receipt Process
The dividend receipt process involves several steps investors must follow to ensure their dividend entitlement. When receiving stock dividends, investors must pay attention to critical dates, particularly the ex-dividend date. Below are the basic steps in the dividend receipt process:
1️⃣ Step 1: Identify the announcement date and important milestones dividend announcement date:
The company's Board of Directors announces dividend payments, including details on the dividend type, payment rate, and other key dates.
- Ex-dividend date: This is the most crucial date for investors. If an investor buys shares on this date, they will not receive the declared dividend. Conversely, those selling shares on this date will still receive the dividend, as they held the shares before the ex-dividend date.
- Record date: This is the date when the company determines the list of shareholders eligible to receive dividends. Only those listed as shareholders on this date will receive dividends.
2️⃣ Step 2: Confirm dividend entitlement
Investors must ensure they own shares before the ex-dividend date to be listed as eligible shareholders. This guarantees their right to receive dividends, whether in cash or stock.
3️⃣ Step 3: Complete dividend receipt procedures
- For cash dividends: Investors receive the dividend transferred directly to their registered securities or bank account. This step usually occurs within a few weeks after the record date.
- For stock dividends: The company issues additional shares to the investor's securities account. This process can take 2-3 months, after which the new shares will be listed and traded on the stock exchange. During this waiting period, investors cannot sell the allotted shares and must wait until the shares are officially tradable.
4️⃣ Step 4: Review account and monitor stock movements
After receiving the dividend, investors should review their securities account to ensure the cash or share quantity has been updated accurately.
For stock dividends, it is essential to monitor the stock value post-issuance, as stock prices may be adjusted downward due to dilution effects. Understanding dividends, the dividend receipt process, and tracking critical dates help investors optimize profits and make informed investment decisions, contributing to long-term success in the stock market.
Conclusion:
Understanding dividends, the process of receiving dividends, and keeping track of critical dates will help investors maximize profits and make intelligent investment decisions, contributing to long-term success in the stock market.
