Stock dividends or cash dividends? Understanding stock dividends and cash dividends is the key to truly earning dividends.

Have you ever wondered why some companies distribute stocks to shareholders while others pay cash? Which one is actually more beneficial for us? Today, let’s talk about stock dividends.

Two Ways of Dividends: Stock Dividends vs. Cash Dividends

When a listed company makes a profit, besides investing in development and paying off debts, the remaining profit is usually distributed to shareholders. There are two ways to distribute dividends:

Method 1: Giving Stocks Directly (Stock Dividends)

The company issues new shares to your account free of charge, increasing your shareholding. For example, if you originally hold 1000 shares and the company decides to give 1 share for every 10 shares held, you will receive an additional 100 shares, making your total 1100 shares. This is called a “stock bonus” or “stock dividend.”

Method 2: Giving Cash Directly (Cash Dividends)

The company transfers money directly into your cash account. For example, if you hold 1000 shares and the company declares a cash dividend of NT$5.2 per share, you will receive NT$5200. But note that cash dividends are usually taxed, so the net amount you receive will be less.

Why Do Companies Choose Different Dividend Methods?

It depends on the company’s cash situation. Paying cash dividends requires the company to have enough cash on hand and to ensure that paying dividends won’t affect normal operations. In contrast, issuing stock dividends has a much lower threshold—so long as the company meets the distribution criteria, it can pay even if it lacks cash.

This also explains a phenomenon: Companies with stable operations and ample cash tend to pay cash dividends; companies with tight cash flow or in rapid expansion tend to pay stock dividends.

When Are Dividends Paid? What Is the Distribution Process?

Payment Schedule

In Taiwan, most stocks pay annual dividends, while in the US, quarterly dividends are common. The payment usually occurs after the financial reports are announced. For example, if a company releases its annual report in February, you might receive dividends in April; if the report is released in April, you might have to wait until June.

But note: Not all profitable companies pay dividends every year. If a company is busy developing new projects or expanding its business, it may choose to retain earnings instead of paying dividends.

Four Key Dates for Dividends

A little tip: Selling shares on the ex-dividend date does not affect your entitlement to dividends, because your shareholder status is confirmed on the record date.

Practical Calculation: Three Methods of Dividend Distribution

Scenario 1: Only Stock Dividends

Suppose you hold 1000 shares, and the company decides to give 1 share for every 10 shares held:

Stock Dividend = (1000 ÷ 10) × 1 = 100 shares

Your account becomes: 1000 + 100 = 1100 shares

Scenario 2: Only Cash Dividends

Suppose you hold 1000 shares, and the company declares NT$5.2 per share:

Cash Dividend = 1000 × 5.2 = NT$5200

After tax (assuming 5%), the actual received amount is NT$5200 × 0.95 = NT$4940

Scenario 3: Mixed Dividends

Suppose the company distributes both stocks and cash, giving 1 share for every 10 shares and NT$1 cash per share:

You receive: 100 shares + NT$1000 in cash

Why Does Stock Price Drop? What’s the Deal with Ex-Dividend and Ex-Right?

Many beginners wonder: After receiving dividends, the stock price drops—is this a loss or a gain?

When paying cash (“Ex-Dividend”)

After the company pays cash, the company’s cash reserves decrease, and its net assets shrink. The value per share decreases accordingly, so the stock price adjusts downward automatically.

Ex-dividend price = Closing price on the record date - Cash dividend per share

When issuing stock (“Ex-Right”)

When the company issues new shares, the total number of shares increases, but the total market value remains the same. The value per share gets diluted, leading to a drop in stock price.

Ex-right price = Closing price on the record date ÷ (1 + Stock issuance rate)

When distributing both cash and stock (“Ex-Right and Ex-Dividend”)

When both are distributed, both factors are considered:

Ex-right and ex-dividend price = (Closing price on record date - Cash dividend per share) ÷ (1 + Stock issuance rate)

Example: If the closing price on the record date is NT$66, and the company pays NT$1 cash plus 1 share for every 10 shares:

Ex-right and ex-dividend price = (66 - 1) ÷ (1 + 0.1) = NT$59

Can You Profit After Ex-Dividend and Ex-Right? The Stories of Fill-Right and Stick-Right

The price drop after ex-dividend/ex-right is only a surface phenomenon. Whether you can truly profit depends on the subsequent trend.

“Fill-Right” and “Fill-Interest”

If the stock price gradually recovers to or exceeds the pre-dividend/ex-right level, it’s called “fill-right” or “fill-interest.” In this case, you get dividends and the stock price doesn’t actually lose value—it’s like earning free money.

“Stick-Right” and “Stick-Interest”

If after the ex-dividend/ex-right date, the stock price continues to decline and doesn’t recover to the pre-distribution level, it’s called “stick-right” or “stick-interest.” In this case, the amount of dividends received is effectively lost.

The True Investment Wisdom

Dividends themselves do not directly create wealth; the real profit comes from two aspects:

• The dividend amount
• Whether the stock price can recover or rise after ex-dividend/ex-right

Therefore, evaluating whether a stock is good or not should not only consider if it pays dividends but also analyze the stock price trend after the payout.

Stock Dividends vs. Cash Dividends: Which Is More Cost-Effective?

Advantages of Cash Dividends

Most investors prefer cash because the reasons are simple:

✓ Cash in hand allows free rein to invest as you wish

✓ No increase in share count, so your ownership percentage isn’t diluted

✓ Paying cash dividends indicates stable management

Disadvantages include: taxes need to be paid, and the net amount received is reduced.

Advantages of Stock Dividends

In the long run, stock dividends may offer higher returns:

✓ If the company develops well, stock appreciation can far exceed dividend income

✓ Compound effect: more shares mean higher base for next dividend

✓ Less tax burden

Disadvantages are: no immediate cash, and increasing shareholding can pose higher risks if the company’s performance deteriorates.

From the company’s perspective

Paying cash dividends requires sufficient cash reserves, which can reduce liquidity and limit new projects. Stock dividends are more flexible and don’t impact cash flow.

Conclusion

• If you need regular cash income, choose cash dividends
• If you are optimistic about the company’s long-term growth, choose stock dividends to enjoy compound growth
• A mixed approach offers the most balanced benefit

How to Check a Company’s Dividend Plan?

Method 1: Visit the company’s official website

Public companies publish dividend announcements and historical dividend records on their websites.

Method 2: Check the stock exchange announcements

For Taiwan, you can find this on the Taiwan Stock Exchange official website in the market announcements section:

• Ex-right and ex-dividend forecast table: to know in advance which stocks will pay dividends
• Calculation result tables: to see specific dividend data for each company

These records often go back more than 5 years, which helps assess the stability of a company’s dividend policy.

Final Thoughts

Dividends are one way listed companies reward shareholders, but not the only way. Some high-growth companies may not pay dividends at all, and their stock price appreciation itself is the best reward.

True investment wisdom: don’t blindly chase high dividend yields; instead, understand the logic behind the company’s dividend policy—whether it reflects healthy fundamentals or is just a superficial tactic to attract investors. Grasping the difference between stock dividends and cash dividends enables you to make the right choices during dividend season.