Investing in Finnish dividend stocks

Investing in dividend stocks can be seen as part of the goal of building long-term wealth. If you are interested in learning more about dividend stocks, especially Finnish dividend stocks, this article may be helpful.

What are dividend-paying shares?

Dividends are a type of payment used by companies to share profits with their shareholders. Dividends can be paid on a monthly, quarterly, semi-annual or annual basis, which is a way for investors to get a return on their investment. This article can help you better understand dividend stocks.

What are dividends?

Dividends are payments that companies make to their shareholders based on the number of shares they own. Dividends are usually paid when a company has excess cash that is not reinvested in the company. This excess cash is divided among the shareholders and paid out to them.

How do dividends work?

If the General Meeting of Shareholders declares a dividend, shareholders are notified through a press release, which usually contains the following information: 1. the Declaration Date, which is the date on which the dividend is declared by the Board of Directors. The announcement will include the amount of the dividend, the Ex-Dividend Date, the Record Date and the Payment Date. 2. The Ex-Dividend Date, which is the date on which the share is no longer traded with the dividend. If you buy shares on or after the Ex-Dividend Date, you are not entitled to the upcoming dividend. Normally, the Ex-Dividend Date is set to one business day before the record date. 3. Record Date, which is when companies review the list of shareholders to determine who is eligible to receive the upcoming dividend. To be on the company’s books by the record date, an investor must buy the stock at least two business days before the record date, due to the T+2 settlement rule in most markets (where transactions settle two business days after the trade was executed). 4. The payout date, which is the day shareholders will receive the dividend Dividends are often paid out quarterly, but can be paid out at other frequencies (or even as a lump sum payment, for special dividends). The amount received depends on the number of shares you own in that company. For example, if you own 100 Norwegian dividend shares and receive NOK 0.50 for each share, you could receive NOK 12.50 every quarter – or NOK 50 annually. To qualify for a dividend, you must be a shareholder. This means that you must already be listed as one of the company’s shareholders on the record date. Dividends are usually relative to the overall financial health of the company, as well as the price at which their shares are trading. When it is a high-value dividend, it may indicate that the company is financially healthy and reporting a good profit. But high value dividends can also point to signs that the company has no future projects planned and is using this money to pay shareholders (instead of reinvesting it). For companies with an established history of dividend payments, any significant reduction in dividend amounts, or the elimination of dividends altogether, could be a warning about the company’s financial health. On the other hand, it could be a signal that management has a plan to reinvest the money in the company’s growth. That’s why it’s important to research which companies you’re thinking of investing in.

How to evaluate dividend stocks?

Investors can calculate several ratios to assess the dividend reliability and attractiveness of the stock. These ratios include: 1. Dividend yield: This is a ratio that shows how much a company pays out in dividends each year in relation to its share price. It is calculated by dividing the annual dividend per share by the price per share. This can give you a rough idea of how much income you can get for every dollar invested in the company. A higher dividend yield can be attractive, but it is important to ensure that the high dividend yield is sustainable. In some cases, some people may put all their energy into what the dividend has been, rather than the fluctuation in the share price. This is a very narrow view, as share prices are related to a company’s performance. As a share’s value grows, the demand for those shares often grows with it. As the law of supply and demand suggests, when demand increases, so does the price. Since dividends are not directly related to the share price, the dividend yield (calculated by dividing the annual dividend per share by the price per share) technically falls. 2. Dividend payout ratio: The dividend payout ratio indicates the percentage of profits a company pays out to shareholders as dividends. It is calculated by dividing the annual dividend per share by the earnings per share (EPS). This can be an indicator of how feasible their dividend policy is. A lower payout ratio (e.g. 10% – 30%) may signal that the company is retaining more profits for growth, while a higher ratio may indicate a strong commitment to paying dividends. However, extremely high payout ratios (e.g. 55%-75%) may not be sustainable. 3. Dividend growth: This ratio measures the annual percentage increase in a company’s dividend per share. Consistent dividend growth over time can be a sign of a company’s health and stability. 4. Dividend Coverage Ratio: This is similar to the payout ratio but focuses on cash flow. It is calculated by dividing the company’s operating cash flow by the total dividends. This ratio indicates how well the company’s cash flow supports the dividend. 5. Earnings yield: This is the inverse of the price-to-earnings ratio (P/E). It is calculated as earnings per share divided by the price per share, and helps investors compare the return on investment from dividends with other investment opportunities. 6. Price-to-dividend ratio: This is the ratio of the company’s current share price to its annual dividend. It is useful for comparing the dividend performance of different stocks. 7. Debt to Equity Ratio: While not a direct dividend payout ratio, it is important to consider a company’s debt level. Simply divide the company’s total debt (lines of credit, bank loans, etc.) by the company’s total assets (real estate, equipment, etc.). This type of information is usually found in annual reports of publicly traded companies.

A high debt-to-equity ratio may indicate a riskier investment and may affect a company’s ability to sustain dividends. Each of these ratios can provide valuable insights, but they should be used in the context of a broader analysis of the company’s overall financial health, business model and industry trends. It is also important to compare these ratios to industry benchmarks and historical performance. You can also look at their past dividend trends. Has it doubled in recent years, or has it slowly declined? How much has it fluctuated, if at all? Get hold of the company’s annual report, spend some time on their website and immerse yourself in their business model to help you understand their growth plan. Keep in mind that there is no guarantee that a company will pay dividends. Take what happened during the 2020 covid pandemic for example: while some companies with strong balance sheets managed to weather the economic downturn we experienced, even some of the best companies had to cut dividends during the pandemic to save money. Remember that dividend stocks are not government bonds, which guarantee the return of your capital. Bondholders are paid out of operating capital, while shareholders are paid out of profits. As a result, dividend stocks are subject to macroeconomic and company-specific risks.

Pros and cons of investing in dividend stocks

Advantages of investing in dividend-paying stocks

Potential for incremental income: Dividend stocks can provide investors with a reliable source of income. While no investment is guaranteed, the incremental income offered by dividend stocks can help ensure that you earn at least a partial return on your investment, and if the company’s profits increase from year to year, the dividends paid to you may also increase. Helps with share valuation: Companies that pay dividends tend to have good cash balances and may therefore be considered financially healthier by investors. Investors often use a company’s current and historical dividends as a reliable benchmark of a company’s financial health. In fact, some investors see a company’s ability to pay dividends as a better indicator of a company’s growth and profitability than changes in a company’s stock price. This can help dividend-paying stocks retain more of their value among investors during economic downturns. Reduces risk and volatility: Profits earned through dividends can help mitigate losses if share prices fall, which can help investors reduce volatility and risk in their portfolio.

Disadvantages of investing in dividend stocks

Limited potential for gains: Dividend stocks don’t usually offer significant growth. That’s because high-growth companies are more likely to reinvest profits back into the company instead of paying significant dividends to shareholders. Dividends are not guaranteed: No investment is ever guaranteed. Companies will only pay dividends to investors when they have profits to share. If a company’s profits decline, dividends to shareholders are likely to decline as well. Dividend traps: Dividend traps occur when a company’s dividend yield makes them appear to be a better investment than they actually are. If a company’s dividend yield is too high, it is probably unsustainable and likely to fall.

Finnish dividend-paying shares

Nordnet lists 25 Finnish companies that they consider to be dividend stocks, these are the Finnish stocks with the highest dividend yield. Note that they have had high dividends does not mean that they will continue to pay high dividends in the future.

Distribution

Source: Nordnet as of January 5, 2025.

Disclaimer

Although saving in shares and funds has historically produced good returns over time, there is no guarantee of future returns. There is a risk that you may not get back the money you invested. There is also no guarantee that the stocks in the table above will continue to deliver high dividends.

How does the Finnish withholding tax on dividends work?

On dividends from Finnish shares, you pay 35% tax at source on the dividend. On share and fund accounts, the Finnish Tax Administration will then deduct an additional 15% tax on the dividend in your tax return.

If you own Finnish dividend shares in a share and fund account or ISK

In this case, you as a customer can claim back from the Finnish Tax Administration the extra 20% tax deducted from the dividends. Your online broker is not able to claim the tax back on your behalf. For this reason, it is usually best to own Finnish dividend shares through an endowment policy.

Viking offers price data on Finnish shares

Norwegian Stock Exchange, Want to keep better track of stocks from Finland? Here you will find giants such as Nokia and Nokian Tires. You can do this by adding the extension Finnish shares from as little as SEK 79 per month.

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