Stock dividends or cash dividends? Which one should investors choose?

There Are Two Types of Dividends, Choosing the Wrong One Could Be Very Costly

After a listed company makes a profit, besides paying off debt and covering losses, what should it do with the remaining profit? Most will return it to shareholders, which is called dividend distribution. However, there are two ways to distribute dividends—stock dividends (stock dividends) and cash dividends (cash dividends). These two methods may seem similar, but in reality, they have very different impacts on investors.

What Are Stock Dividends? How to Choose

Stock dividends mean the company directly gives shareholders additional shares, increasing your shareholding. For example, if you hold 1,000 shares and the company decides to issue 1 share for every 10 shares held (a profit-sharing ratio of 1:10), you will receive an additional 100 shares, making your total holdings 1,100 shares.

Cash dividends are actual cash paid out by the company. If you hold 1,000 shares and the company decides to pay 5 yuan per share, you will receive 5,000 yuan (possibly less after tax).

Why does a company choose one over the other? The key factor is whether the company has enough cash on hand. Cash dividends require the company to be profitable and have sufficient cash in the account; otherwise, it could affect the company’s liquidity. Stock dividends have a much lower threshold—they can be distributed as long as the distribution conditions are met, even if cash is tight. This is why some companies prefer to pay stock dividends.

How to Calculate Stock Dividends? Three Examples for Easy Understanding

Pure Stock Dividends

Cathay Financial Holdings decides to distribute 1 share for every 10 shares held. You hold 1,000 shares, so the calculation is:

• 1,000 ÷ 10 × 1 = 100 shares of stock dividends
• Final holdings: 1,000 + 100 = 1,100 shares

Pure Cash Dividends

Hon Hai decides to pay 5.2 yuan per share. You hold 1,000 shares:

• 1,000 × 5.2 = 5,200 yuan
• After 5% tax deduction: 5,200 × 0.95 = 4,940 yuan

Mixed Distribution

Some companies distribute both stock and cash simultaneously. For example, issuing 1 share for every 10 shares and paying 4 yuan cash per share:

• Stock part: 1,000 ÷ 10 = 100 shares
• Cash part: 1,000 × 4 = 4,000 yuan
• Total benefit: 100 shares + 4,000 yuan

Dividend Payment Schedule: How Long Does It Take from Announcement to Credit?

Listed companies generally pay dividends once a year, with some paying semi-annually or quarterly. The entire process is as follows:

Announcement Date → Company announces dividend plan

Record Date → As long as you hold shares before this date, you are eligible; this is the key cutoff point

Ex-Dividend Date → Usually the trading day after the record date; if you buy on or after this day, you won’t receive this period’s dividend

Distribution Date → The actual date the dividend is credited to your account

In terms of timing, if a company releases its annual report in February, dividends might be paid in April; if the annual report is released in April, you might receive dividends in June. Don’t worry; different companies have different schedules.

Stock Dividends vs. Cash Dividends: How Should Investors Choose?

Advantages of Cash Dividends

• High Flexibility: You can freely choose your investment targets with the cash received
• No Dilution of Equity: Paying cash does not increase the number of shares, so your ownership percentage remains unchanged
• Guaranteed Income: Once the money is in your hands, it’s yours

Disadvantages of Cash Dividends

• Taxation Required: Tax rates depend on how long you’ve held the shares
• Company Pressure: Paying too much cash can affect liquidity and limit business expansion

Advantages of Stock Dividends

• Great Long-term Growth Potential: If the company develops well, stock appreciation yields far greater returns than dividends
• Profit Reinvestment: Retaining earnings within the company for reinvestment supports growth
• Suitable for Long-term Holding: Increasing share count can lead to greater potential future gains

Disadvantages of Stock Dividends

• Uncertain Returns: Depends on future stock price performance
• Requires Patience: It may take a long time to see returns

In simple terms: if you want stable cash flow, choose cash dividends; if you are optimistic about the company’s prospects and want long-term growth, choose stock dividends. Over the long term, if the company develops well, stock dividends often lead to more impressive wealth growth.

Why Does the Stock Price Drop After Ex-Dividend and Ex-Right?

After dividends are paid, the stock price usually drops significantly. Why is that? Don’t worry, your rights are not “stolen.”

When paying cash: The company’s net assets decrease, reducing the value per share, so the stock price drops accordingly. For example, if the stock price before dividend is 66 yuan and a 10 yuan cash dividend is paid, the next day the stock price will be around 56 yuan—that’s called ex-dividend.

When paying stock dividends: The total number of shares increases, but the total market value remains unchanged. The value per share decreases, and the stock price also drops. If the stock was 66 yuan before and 1 share is issued for every 10 shares, the price might drop to around 60 yuan on the ex-dividend date—that’s called ex-right.

This decline is a normal mathematical adjustment and does not indicate any problem with the company. If the stock price recovers to previous levels afterward, it’s called filling the gap / filling the dividend; if it continues to decline, it’s called discounting the gap / discounting the dividend.

Where to Check Dividend Announcements

Method 1: Company Official Website

Many companies publish dividend announcements on their official websites, and some also list historical dividend records for reference.

Method 2: Stock Exchange

For example, in Taiwan, listed companies’ dividend information can be found on the Taiwan Stock Exchange’s official website under market announcements, including ex-rights and ex-dividend notices and calculation results. The calculation results table records dividend data from May 5, 2003 (Minguo 92).

Final Reminder

Dividends are just one way for companies to reward shareholders; they do not guarantee profits. Companies that do not pay dividends may also increase shareholder value through stock splits or buybacks. Whether you profit depends ultimately on the company’s long-term profitability and stock price performance. Before choosing a dividend method, think carefully about your investment goals—if you want cash flow, choose cash dividends; if you aim for long-term appreciation, choose stock dividends, or participate in company growth through earnings reinvestment.