A Complete Analysis of Listed Company Dividends: The Choice Between Stock Dividends and Cash Dividends

The Essence of Dividends: Why Do Companies Reward Shareholders?

When a listed company successfully turns a profit, pays off debts, and compensates for past losses, the remaining profits are often distributed to investors. This process is called dividend payout or distribution of dividends, and it is one of the main ways shareholders earn investment returns. Different shareholders receive different dividend amounts based on their shareholding proportion or company regulations.

However, dividends are not limited to just one form. Companies can choose to distribute cash directly or issue new shares to shareholders. Both methods have their advantages and disadvantages, and investors need to understand their mechanisms to better evaluate investment returns.

The Core Differences Between Two Types of Dividends

Cash Dividends: Immediate Returns

Cash dividends refer to the company transferring profits directly into shareholders’ cash accounts, also known as dividend payout or dividend distribution. This method requires the company to have sufficient cash reserves and does not change the total share capital, so there is no dilution of shareholders’ equity.

From an investor’s perspective, receiving cash means the freedom to choose new investment opportunities. However, it is important to note that most regions impose income tax on cash dividends, with rates often linked to the holding period.

For the company, paying cash dividends directly reduces available liquidity, which may limit investments in new projects or business expansion. Therefore, the threshold for cash dividends is relatively high.

Stock Dividends: A Tool for Long-term Appreciation

Stock dividends (also called bonus shares) refer to the company issuing new shares to shareholders free of charge, which are directly deposited into investors’ trading accounts. After issuing stock dividends, the number of shares held increases, but the company’s total market value remains unchanged.

The advantage of stock dividends is their lower threshold—so long as the distribution criteria are met, even if cash on hand is insufficient, the company can still proceed. For growth-stage companies, this method allows retaining funds for business expansion.

However, stock dividends have an important characteristic: they increase the total share capital, which may lead to earnings per share (EPS) dilution, and shareholders’ proportional ownership is nominally diluted.

Stock Dividend Calculation Mechanism and Practical Operations

Calculation Method Explained

Suppose an investor holds 1000 shares of a company, and the company decides on different distribution schemes:

Pure Stock Dividend Model:

• The company declares a 1-for-10 stock dividend
• Calculation: (1000 ÷ 10) × 1 = 100 shares of stock dividend
• Result: The account’s share count increases to 1000 + 100 = 1100 shares

Pure Cash Dividend Model:

• The company declares a cash dividend of 2 yuan per share
• Calculation: 1000 × 2 = 2000 yuan cash dividend
• Tax deduction (assuming 5%): 2000 × (1 - 0.05) = 1900 yuan net received

Mixed Distribution Model:

• 1 stock for every 10 shares + 1.5 yuan cash per share
• Final result: 100 new shares + 1500 yuan cash

Using a stock dividend calculator can quickly derive distribution results under different shareholding scales, helping investors evaluate returns in advance.

Distribution Schedule

Public companies usually distribute dividends after releasing financial reports. In Taiwan, annual dividends are common, while U.S. stocks often adopt quarterly dividend systems. The complete dividend process includes:

1. Announcement Date: The company announces the dividend plan
2. Record Date: The cutoff date; shareholders registered before this date are entitled to dividends
3. Ex-dividend Date: Usually the trading day after the record date; stocks bought on or after this date do not receive the current dividend
4. Distribution Date: The official date when dividends are paid out

The Mathematical Principles of Ex-dividend and Ex-rights

After dividends are distributed, the stock price will undergo technical adjustments, which are normal market reactions.

Ex-dividend Price Calculation

When a company pays cash dividends, its net assets decrease, and the net asset value per share also declines:

Ex-dividend Price = Closing Price on Record Date - Cash Dividend per Share

For example: If Company A’s closing price on the record date is 66 yuan, and the dividend per share is 10 yuan, the next day’s ex-dividend price will be 66 - 10 = 56 yuan.

Ex-rights Price Calculation

Issuance of stock dividends increases total share capital, leading to dilution of per-share equity:

Ex-rights Price = Closing Price on Record Date ÷ (1 + Rights Issue Ratio)

For example: If Company A’s closing price on the record date is 66 yuan, and it issues 1 new share for every 10 shares (rights issue ratio 0.1), the next day’s ex-rights price will be 66 ÷ (1 + 0.1) = 60 yuan.

In the case of a mixed scenario, the ex-rights and ex-dividend price is:

Ex-rights and ex-dividend Price = Closing Price on Record Date - (Cash Dividend per Share ( ÷ )1 + Rights Issue Ratio()

For example: If the company pays a 1 yuan dividend per share, issues rights at a ratio of 0.1, and the closing price on the record date is 66 yuan, then the ex-rights and ex-dividend price is )66 - 1( ÷ )1.1( = 59.1 yuan.

Price Movement After Rights Issue and Discounting: Fill or Discount

The decline in stock price after ex-rights and ex-dividend is a technical adjustment, but the subsequent trend depends on market perception of the company’s prospects:

• Fill/Fill-in: The stock price recovers to pre-dividend levels, and investors’ wealth increases
• Discount/Discount-in: The stock price continues to decline below the pre-dividend level, leading to investor losses

The company’s dividend distribution essentially signals a positive message—indicating good operational health. This often boosts investor confidence, attracts buying interest, and can push the stock price higher to complete the fill-in process.

Stock Dividends vs Cash Dividends: Which Is Better?

) Impact on Investors

Most investors prefer cash dividends because they provide immediate income and flexibility for reinvestment. Since no new shares are issued, cash dividends do not dilute shareholders’ equity.

However, from a long-term return perspective, if the company is developing well, capital gains from stock price appreciation often far exceed cash dividend income. Although stock dividends may seem to have no immediate value, they lay a foundation for long-term profits—more shares in a bull market can generate larger gains.

Impact on the Company

Cash dividends put pressure on the company’s liquidity, especially for cash-strapped firms, potentially causing difficulties in working capital. In contrast, stock dividends do not require cash outflow, protecting the company’s funds for business expansion.

Therefore, companies at different development stages make different choices: mature and stable firms tend to pay cash, while high-growth companies prefer issuing stock.

How to Find Dividend Information

Official Corporate Channels

Most listed companies publish dividend announcements on their official websites, and some also compile historical dividend records for investors to review.

Stock Exchange Public Data

For example, in Taiwan, the [Taiwan Stock Exchange]###https://www.twse.com.tw( official website provides access to market announcements, including ex-rights and ex-dividend notices and calculation tables, covering detailed dividend information from recent years.

Through these tools, investors can accurately understand a company’s dividend policy and payout history, enabling more informed investment decisions.