Comprehensive Guide to Dividend and Distribution: Stock Dividends, Cash Dividends, and Ex-Dividend/Ex-Rights

Two Core Methods of Shareholder Dividends

Investors become shareholders after purchasing listed company stocks. When the company turns a profit and completes debt repayment and loss coverage, it typically distributes part of the remaining profits as dividends to shareholders. This dividend distribution system is an important mechanism for the company and shareholders to share operational results.

Dividends are mainly distributed through two methods. The first is stock dividends, where the company distributes additional shares to shareholders free of charge. These new shares directly enter investors’ accounts, increasing the total number of shares held, also known as “bonus shares.” The second is cash dividends, where the company directly transfers cash into investors’ accounts, also called “dividend payout.”

The choice between these two methods depends on the company’s financial condition. Distributing cash dividends requires the company to have sufficient retained earnings and ample cash flow, ensuring that dividend payments do not affect normal operations. In contrast, issuing stock dividends has a lower threshold; as long as the distribution criteria are met, it can be executed even when cash is tight. This is often the preferred option for many companies in their growth phase.

Dividend Distribution Cycle and Process

In the Taiwanese market, most listed companies adopt an annual dividend system, while US stocks often pay quarterly dividends. Dividend plans must be approved by the shareholders’ meeting and disclosed in financial reports. The payout usually occurs after the annual or quarterly financial reports are released, with the specific payment date varying depending on each company’s reporting schedule.

The standard process for stock dividends includes four key dates:

Announcement Date: The company announces the dividend plan
Record Date: The date to determine the list of eligible shareholders; only those holding shares before this date can participate in the dividend payout
Ex-dividend and Ex-rights Date: Usually the trading day following the record date; shares bought on this day do not enjoy the current period’s dividends, but shareholders holding shares before this date retain dividend rights even if they sell on or after this day
Distribution Date: The official date when dividends are paid to shareholders

It is important to note that dividends are just one way for companies to reward shareholders. If the company’s stock is in a good upward trend, the increase in stock price itself can generate returns for shareholders. Some companies that do not pay dividends may instead reward shareholders through stock splits or share repurchases.

Practical Calculation of Stock and Cash Dividends

Example of stock dividend calculation:
Suppose an investor holds 1,000 shares, and the company decides to distribute 0.5 shares for every 10 shares held. The number of stock dividends received would be (1000 ÷ 10) × 0.5 = 50 shares, increasing the account holdings to 1,050 shares.

Example of cash dividend calculation:
If an investor holds 1,000 shares and the company pays 5.2 yuan per share, the total cash received would be 1,000 × 5.2 = 5,200 yuan. After deducting 5% withholding tax, the actual amount received would be 5,200 × 0.95 = 4,940 yuan.

Mixed dividend example:
A company might distribute both stock and cash dividends simultaneously, such as giving 1 stock for every 10 shares (100 shares) plus 4 yuan cash per share (4,000 yuan). The investor would ultimately receive 100 new shares plus 4,000 yuan in cash.

Calculation Method for Ex-dividend and Ex-rights Price

After dividends are paid, stock prices tend to experience a technical decline because part of the company’s assets are distributed. Understanding the ex-dividend and ex-rights price calculation is crucial for investors to judge the stock price movement after dividend distribution.

Cash dividend ex-dividend price calculation:
Ex-dividend price = Closing price on record date - Cash dividend per share
For example, if the closing price on the record date is 66 yuan and the cash dividend per share is 10 yuan, the next day’s ex-dividend price would be 66 - 10 = 56 yuan.

Stock dividend ex-rights price calculation:
Ex-rights price = Closing price on record date ÷ (1 + Rights ratio)
If the company distributes 1 share for every 10 shares held, with a rights ratio of 0.1, and the closing price is 66 yuan, then the ex-rights price is 66 ÷ 1.1 = 60 yuan.

Mixed dividend ex-rights and ex-dividend price calculation:
Ex-rights and ex-dividend price = (Closing price on record date - Cash dividend per share) ÷ (1 + Rights ratio)
Suppose dividends include 1 stock for every 10 shares and a cash dividend of 1 yuan, with a rights ratio of 0.1 and a cash dividend of 0.1 yuan, then the price is (66 - 0.1) ÷ 1.1 = 59.9 yuan.

Dual Impact of Dividends on Stock Price and Investment Returns

Analysis of ex-rights and ex-dividend mechanisms:

Paying cash dividends directly reduces the company’s net assets, causing the corresponding asset value per share to decline, resulting in an “ex-dividend” phenomenon. Distributing stock increases the total share capital but leaves the company’s market value unchanged, leading to a decrease in per-share value, known as “ex-rights.” In both cases, stock prices tend to experience technical gaps.

To reflect the true increase in stock value, adjusted prices are used. Forward adjustment (pre-adjustment) adjusts the price before ex-dividend/ex-rights to the current level, while backward adjustment (post-adjustment) restores the price after ex-dividend/ex-rights to past levels.

Lag effect of dividends on investor returns:

Dividends themselves do not directly increase investor wealth; their core value lies in signaling the company’s good development prospects, boosting investor confidence. After ex-dividend/ex-rights, stock prices tend to fall, making stocks relatively cheaper. Investors optimistic about the company’s future are willing to buy at lower prices, which can push the stock price higher.

If the stock price recovers to the pre-dividend level after dividend payout, it is called “price recovery” or “dividend fill”; if the price continues to decline, it is called “price gap” or “dividend gap.” Only when price recovery occurs can investor wealth increase with stock price appreciation.

Advantages and Disadvantages of Stock and Cash Dividends

Differences for investors:

Most investors prefer cash dividends because they can freely allocate the received funds and choose the best investment opportunities. Cash dividends do not increase the number of shares and do not dilute shareholder equity. However, cash dividends are subject to personal income tax, with rates depending on the holding period.

In contrast, stock dividends may seem to offer less immediate benefit, but in the case of a company’s long-term good growth, the potential for stock price appreciation often exceeds the gains from cash dividends. Stock dividends are suitable for investors with long-term holding plans, enabling compound growth of assets.

Considerations for the company’s finances:

Distributing cash dividends requires the company to have sufficient earnings and cash reserves. Large dividend payments can reduce available cash flow, limit new project development, and even trigger liquidity crises. Therefore, companies in growth stages or with tight funds often choose to distribute stock dividends, which can reward shareholders while retaining funds for business expansion.

Quick Ways to Check Dividend Information

Official corporate channels:
Listed companies usually publish dividend announcements on their official websites. Many also maintain historical dividend records, allowing investors to review complete dividend data.

Stock exchange databases:
For example, in Taiwan, the Taiwan Stock Exchange’s official website provides pre- and post-ex-dividend tables and calculation results in the market announcement section. Investors can access detailed dividend data for each company since 2003, making it an important reference for studying corporate dividend policies.