In-Depth Analysis of Dividend Distribution Methods: Complete Explanation of Stock Dividends and Cash Dividends, with the Dividend Calculator to Help You Understand the Payout Mechanism

Why Do Listed Companies Pay Dividends? Where Do Shareholder Returns Come From

After a listed company turns a profit in its operations, it uses part of the remaining earnings to repay debts, cover losses, and reward investors. This practice is called dividend distribution (dividends). It is one of the main ways shareholders participate in the company’s success. According to shareholders’ ownership ratios or company articles of incorporation, each shareholder’s dividend amount varies. There are two main types of dividend distribution: one is stock dividends, and the other is cash dividends.

Stock Dividends vs. Cash Dividends: The Fundamental Difference Between Two Dividend Payment Methods

Stock dividends, also known as “bonus shares,” are issued by the company to shareholders free of charge, increasing the number of shares held. These new shares are directly deposited into investors’ accounts, resulting in more shares. In contrast, cash dividends (also called payout dividends) involve the company depositing cash directly into investors’ accounts.

The choice of dividend method depends on the company’s financial situation. Paying cash dividends requires sufficient profits and cash reserves, and the payout must not affect normal operations. Stock dividends have a lower threshold; as long as the payout conditions are met, even if cash is insufficient, this method can be used.

Dividend Cycle and Payment Process: From Announcement to Entry

Dividends are usually paid annually. Taiwanese stocks often distribute dividends annually, while US companies generally pay quarterly. The dividend plan must be approved at the shareholders’ meeting and disclosed in financial reports. For example, a company that discloses annual reports in February may pay dividends in April; a company that discloses in April may pay in June.

The process of issuing stock dividends includes four key dates:

• Announcement Date: The company announces the dividend plan
• Record Date: Confirms which shareholders are entitled to dividends; those holding shares before this date receive dividends
• Ex-dividend and Ex-rights Date: Usually one trading day after the record date; purchases on this day do not receive this period’s dividends
• Distribution Date: Officially pays dividends to shareholders

It is important to note that not all profitable companies pay dividends every year. If a company has major projects or expansion needs, it may retain earnings even if profitable, and instead return value through stock splits or buybacks.

Practical Application of Dividend Calculators: The Logic Behind Three Payment Methods

Pure Stock Dividend Distribution

Suppose an investor holds 1,000 shares of Cathay Financial, and the company decides to distribute stock dividends at a ratio of 1 share for every 10 shares held:

• Number of shares received: (1000 ÷ 10) × 1 = 100 shares
• Total shares after distribution: 1000 + 100 = 1100 shares

Pure Cash Dividend Distribution

Suppose an investor holds 1,000 shares of Hon Hai, and the company pays a cash dividend of NT$5.2 per share:

• Dividend amount: 1000 × 5.2 = NT$5,200
• After 5% tax deduction, actual received: NT$5,200 × 0.95 = NT$4,940

Mixed Distribution

In a single payout, both stock and cash dividends are distributed, e.g., every 10 shares get 1 share plus NT$1 cash:

• Stock dividend: 100 shares
• Cash dividend: NT$1,000
• Final returns: 100 shares + NT$1,000 cash

Ex-dividend and Ex-rights Price Calculation: How the Dividend Calculator Derives Price Changes

Dividends cause the stock price to technically decline, due to a decrease in the company’s net assets (cash payout) or an increase in total shares (new shares issued). Calculating the new stock price uses the following formulas:

Cash Dividends Scenario
Ex-dividend price = Closing price on record date – per-share cash dividend

Example: Company A’s record date closing price is NT$66, with a NT$10 dividend per share; the next day’s ex-dividend price is NT$66 – NT$10 = NT$56

Stock Dividends Scenario
Ex-rights price = Closing price on record date ÷ (1 + allotment ratio)

Example: Company A’s closing price is NT$66; for every 10 shares, 1 new share is issued (ratio 0.1); next day’s ex-rights price is NT$66 ÷ 1.1 ≈ NT$60

Mixed Distribution Scenario
Ex-rights and ex-dividend price = (Closing price on record date – per-share cash dividend) ÷ (1 + allotment ratio)

Example: Company A’s closing price is NT$66; with 1 share plus NT$1 cash dividend, next day’s ex-rights and ex-dividend price is (66 – 1) ÷ 1.1 ≈ NT$59.1

Stock Dividends vs. Cash Dividends: Considerations for Investors and Companies

Investor Perspective

Market surveys show most investors prefer cash dividends because after payout, investors can freely choose investment targets, and their ownership percentage is not diluted (total shares remain unchanged). However, cash dividends are subject to personal income tax, with rates depending on holding period.

Long-term, stock dividends have greater potential. If the company develops well, stock price appreciation can generate returns far exceeding cash dividends. Stock dividends are more suitable for long-term investors, while cash dividends appeal to “cash-in-hand” investors.

Company Perspective

Cash dividends require the company to maintain sufficient earnings and cash flow; after payout, available cash decreases, limiting new project development. Companies with liquidity issues that overpay dividends may face operational difficulties. In contrast, stock dividends do not impact the company’s cash flow.

Post-Dividend Price Trends: Handling Fill-Price, Discount-Price, and Reinstatement

Dividends cause a decline in stock price called “ex-dividend” or “ex-rights,” often creating a noticeable gap. To maintain continuous candlestick charts, re-adjustment methods are used:

• Pre-reinstatement: Convert prices before dividend payout to current prices, shifting the pre-dividend candlestick downward
• Post-reinstatement: Convert prices after dividend payout to past prices, shifting the post-dividend candlestick upward
• No adjustment: Keep original price data

If the stock price recovers to the pre-dividend level, it is called “fill the gap”; continued decline is “discounted.” When the price fills the gap, investors’ wealth increases with stock price appreciation.

How to Access Dividend Information: Channels and Practical Tools

Corporate Website Inquiry

Listed companies publish dividend announcements, which investors can check on the company’s official website. Many also compile historical dividend records for reference.

Stock Exchange Official Data

For example, in Taiwan, investors can check the Taiwan Stock Exchange’s official website under market announcements for ex-dividend and ex-rights notices and calculation tables, covering complete dividend data since 2003.