Understand stock dividends, cash dividends, and distributions in one article: From dividend types to practical calculations

Investors who purchase listed company stocks have the opportunity to receive dividends when the company turns a profit. However, there are many ways to distribute dividends, involving concepts such as stock dividends, cash dividends, and payout distributions. This article will systematically analyze the differences between these dividend forms, their calculation methods, and their specific impacts on stock prices and investors.

The Essence of Dividends: Two Main Ways of Distributing Profits

Listed companies distribute profits to shareholders through dividends or dividends payout. There are mainly two methods:

1. Distributing Stocks (Stock Dividends)

The company directly issues new shares to shareholders free of charge, increasing the number of shares held by investors. This is called stock dividends or stock splits. For example: if an investor holds 1000 shares and the company issues stock dividends at a ratio of 10:1, the investor will receive an additional 100 shares, bringing the total to 1100 shares.

2. Distributing Cash (Cash Dividends)

The company deposits cash directly into the investor’s account, known as cash dividends, dividend payout, or distribution of profits. Distributing cash dividends means the company pays out cash dividends to shareholders, which is the most direct way of profit sharing. Using the same 1000 shares as an example, if the dividend per share is 5 yuan, the investor will receive 5000 yuan in cash dividends.

The choice of method depends on the company’s financial situation. Distributing cash dividends requires sufficient profit and cash reserves, and must not threaten the company’s liquidity. In contrast, stock dividends have a lower threshold; as long as the distribution conditions are met, they can be issued even when cash is tight.

When Are Stock Dividends Distributed? A Full Analysis of Dividend Dates

Dividend Distribution Cycle

Listed companies usually pay dividends once a year. In Taiwan stocks, annual dividends are common, while US stocks often use quarterly dividends. The dividend payout time generally occurs after the company’s financial report is released. If a company releases its annual report in February, shareholders might receive dividends as early as April; if the report is released in April, they may need to wait until June.

Not all profitable companies pay dividends every year. If a company needs to invest large sums into operational projects or expansion, it may choose not to pay dividends even if it has earnings.

Four Key Dates

• Announcement Date: The company announces the dividend plan
• Shareholder Registration Date: The company confirms the shareholders eligible for dividends on this date (including the date itself). Only those holding shares before or on this date are eligible.
• Ex-dividend and Ex-rights Date: Usually the trading day after the shareholder registration date. Buying shares on this day or later means you do not receive this period’s dividends.
• Dividend Distribution Date: The company officially transfers dividends into shareholders’ accounts

Practical Calculation of Stock Dividends

Pure Stock Dividend Distribution

Suppose an investor holds 1000 shares, and the company announces a stock dividend of 0.5 shares for every 10 shares held. The calculation is:

(1000 ÷ 10) × 0.5 = 50 shares

The investor’s total shares will then be 1000 + 50 = 1050 shares.

Pure Cash Dividend Distribution

The investor still holds 1000 shares, and the company pays a dividend of 3.5 yuan per share. The calculation is:

1000 × 3.5 = 3500 yuan in cash

If taxes are deducted (assumed at 5%), the actual amount received is: 3500 × 0.95 = 3325 yuan.

Mixed Distribution

The company may distribute both stock and cash simultaneously. For example, issuing 1 stock for every 10 shares plus a cash dividend of 2 yuan per share. The investor will receive:

• 100 shares as stock dividends
• 2000 yuan in cash dividends
• Final benefits: 100 new shares + 2000 yuan cash

Principles and Price Adjustment Formulas for Ex-dividend and Ex-rights

After dividends are distributed, stock prices will adjust accordingly. Understanding this mechanism requires grasping three core concepts.

Meaning of Ex-dividend

After paying cash dividends, the company’s net assets decrease, and the net asset value per share declines accordingly, leading to a drop in stock price. This process is called ex-dividend.

Calculation formula: Ex-dividend price = Closing price on registration date − Cash dividend per share

For example, if a stock’s closing price on the registration date is 66 yuan and the dividend is 10 yuan, the next day’s ex-dividend price should be: 66 − 10 = 56 yuan.

Meaning of Ex-rights

After issuing new shares (stock dividends), the total share capital increases but the total market value remains unchanged. The value represented by each share decreases, and the stock price adjusts downward accordingly. This process is called ex-rights.

Calculation formula: Ex-rights price = Closing price on registration date ÷ (1 + stock issuance ratio)

For example, if the closing price on the registration date is 66 yuan and the stock issuance ratio is 10:1 (ratio = 0.1), the next day’s ex-rights price should be: 66 ÷ (1 + 0.1) = 60 yuan.

Ex-rights and Ex-dividend Price (Mixed Distribution)

When both stock and cash are distributed simultaneously, both adjustments are needed:

Calculation formula: Ex-rights and ex-dividend price = (Closing price on registration date − Cash dividend per share) ÷ (1 + stock issuance ratio)

For example, if the closing price on the registration date is 66 yuan, the cash dividend is 1 yuan, and the stock issuance ratio is 10:1, then the ex-rights and ex-dividend price is: (66 − 1) ÷ (1 + 0.1) = 59.09 yuan.

Stock Dividends vs. Cash Dividends: Which Is More Suitable for Investors?

Both dividend methods have advantages and disadvantages.

Investor Perspective

Most investors prefer cash dividends because the received funds can be freely used for other investments. Additionally, cash dividends do not increase the issued share capital and do not dilute existing shareholders’ ownership proportion. However, cash dividends are subject to taxation, with rates depending on the holding period.

In contrast, stock dividends offer greater long-term growth potential. If the company develops well, the increase in stock price often yields returns far exceeding cash dividends. Stock dividends are suitable for long-term investors aiming for wealth compounding.

Company Perspective

Distributing cash dividends requires the company to have sufficient profits and cash reserves. Large dividends directly consume available cash, weaken liquidity, and may limit new project development. Companies with tight financial conditions that overpay dividends may face difficulties in cash flow or liquidity crises.

Distributing stock dividends exerts minimal cash pressure and is more suitable for growth-oriented companies. It allows them to reward shareholders while retaining cash for expansion.

Actual Impact of Dividend Distributions on Stock Price and Investors

Short-term Stock Price Performance

After dividend announcement, stock prices usually decline, which is a natural result of ex-rights and ex-dividend adjustments. However, this is not necessarily negative—lower prices make stocks more affordable, attracting more investors, especially those optimistic about the company’s prospects.

• Fill the rights and fill the dividends: After ex-rights and ex-dividend, stock prices rebound to pre-distribution levels, increasing investors’ wealth as stock prices rise.
• Partial rights and partial dividends: After distribution, stock prices continue to decline, and investors’ equity shrinks accordingly.

Long-term Wealth Effects

Dividends themselves do not directly increase investors’ wealth, but they send positive signals—indicating good development, profitability, and promising prospects. This boosts market confidence, attracts capital inflows, and pushes stock prices higher. Ultimately, gains come from the fill-the-rights and fill-the-dividends market after ex-rights and ex-dividend.

For long-term holders, the key is whether the company can realize stock price appreciation after paying dividends, which is the true source of returns.

Alternatives to Cash Dividends

Not all companies pay dividends. Some use other ways to reward shareholders.

Stock Splits

The company splits one share into multiple shares, increasing the number of shares held by shareholders, while the share price decreases proportionally. Splits do not create new wealth but can attract more investors due to lower share prices, potentially pushing the stock price higher.

Share Buybacks

The company uses its own funds to repurchase its shares, reducing total shares outstanding, increasing net asset value per share, and raising stock price. Buybacks signal confidence in the company’s prospects, boosting investor confidence and driving up the stock price.

How to Check a Company’s Dividend Information?

Official Channels

Investors can check dividend announcements and historical payout records on the company’s official website. Many large companies provide detailed dividend data for reference.

Stock Exchange Announcements

For example, in Taiwan, investors can check the Taiwan Stock Exchange’s website for ex-rights and ex-dividend notices and calculation tables. These tables record detailed dividend information since 2003, including dividend dates, amounts, and ex-rights and ex-dividend prices.

Using these systems, investors can accurately grasp dividend timing and amounts, enabling more informed investment decisions.

Investing in stock dividends is an important way to earn passive income. Understanding the differences between stock dividends, cash dividends, and payout distributions, mastering calculation methods and ex-rights and ex-dividend principles, can help investors make more rational choices. Whether for short-term arbitrage or long-term holding, strategies should be flexibly adjusted based on individual circumstances and company prospects.