Understand in one article how to calculate stock dividends! Which is more cost-effective, cash dividends or stock dividends?

Investors buying stocks are all waiting for one thing — dividends. After a listed company makes a profit, it usually returns a portion to shareholders, which is called dividend distribution. But there are two ways to distribute dividends: one is to give cash (cash dividends), and the other is to send shares (stock dividends). How do you choose to make your wallet fatter?

Stock Dividends vs. Cash Dividends, How Do Companies Choose?

Stock dividends mean the company gives you additional shares for free, deposited into your account, increasing your shareholding. This is called stock dividend or bonus shares.

Cash dividends mean the company directly deposits money into your account, also called cash dividend or dividend payout.

The choice between the two depends entirely on the company’s current situation. Paying cash requires higher standards — profitability, sufficient cash on hand, and no liquidity issues after distribution. Stock dividends are more relaxed — as long as the distribution criteria are met, even if the company lacks cash, it can still issue bonus shares.

Timeline for Stock Dividend Distribution

Listed companies usually distribute dividends once a year, but some do semi-annual or quarterly dividends. For example, most Taiwanese stocks distribute annual dividends, while US stocks tend to do quarterly. The dividend plan must be approved at the shareholders’ meeting and disclosed in financial reports.

The entire distribution process consists of four steps:

Announcement Date — The company announces the dividend news

Record Date — Determines who is eligible to receive the dividend; ownership before this date counts

Ex-Dividend Date — Usually the trading day after the record date; buying stock on this day means no dividend

Distribution Date — The official date when dividends are credited to your account

How to Calculate Stock Dividends? Three Examples to Get You Started

Pure Bonus Shares Scenario

Suppose you hold 1000 shares of Cathay Financial, and the company decides to issue 1 bonus share for every 10 shares held:

• Calculation: (1000 ÷ 10) × 1 = 100 shares
• Result: Your account now has 1000 + 100 = 1100 shares

Cash Dividend Scenario

Suppose you hold 1000 shares of Hon Hai, and the company decides to pay 5.2 yuan per share:

• Calculation: 1000 × 5.2 = 5200 yuan
• After tax: 5200 × 0.95 = 4940 yuan (assuming 5% individual tax)

Mixed Distribution Scenario

Some companies distribute both bonus shares and cash, for example, holding 1000 shares of Hon Hai:

• Bonus shares: 1000 ÷ 10 = 100 shares
• Cash: 1000 × 4 = 4000 yuan
• Final gain: 100 shares + 4000 yuan cash

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

After dividend distribution, stock prices usually fall, which can be startling. But this is normal, driven by two mechanisms:

Ex-Dividend — The company pays cash, reducing net assets, so the value per share naturally decreases, and the stock price drops accordingly. Calculation:

• Ex-dividend price = Closing price on record date − cash dividend per share
• For example: A stock at 66 yuan pays a 10 yuan dividend, next day it becomes 66 − 10 = 56 yuan

Ex-Right — The company issues additional shares, increasing total share capital but keeping market value unchanged, diluting the value per share, causing the price to fall. Calculation:

• Ex-right price = Closing price on record date ÷ (1 + allotment ratio)
• For example: A stock at 66 yuan, with a 1-for-10 bonus (ratio 0.1), next day it becomes 66 ÷ 1.1 = 60 yuan

When both dividends and bonus shares are distributed:

• Ex-rights and dividends price = (Closing price on record date − cash dividend) ÷ (1 + allotment ratio)
• For example: 66 yuan dividend of 1 yuan, with 1-for-10 bonus, next day it’s (66 − 1) ÷ 1.1 = 59.1 yuan

What Are “Fill-Back” and “Stick-Back” After Price Drop?

After ex-rights and ex-dividends, the stock price becomes lower. If the company’s prospects are good, investors are willing to buy at the lower price, and the stock price gradually recovers to pre-dividend levels — called fill-back or fill-in. Conversely, if the stock continues to decline, it’s called stick-back or stick-in.

When fill-back occurs, your wealth increases as the stock price rises — that’s the true power of dividends.

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

Investors generally prefer cash dividends because:

• You receive cash and can choose your investment direction freely
• Paying cash does not dilute your ownership stake
• Returns are more certain and direct

However, cash dividends have tax costs, with rates depending on holding period.

For companies, cash dividends are more demanding:

• Require sufficient earnings and cash reserves
• After paying cash, the company’s available liquidity decreases
• May limit new projects or expansion

In the long run, stock dividends have advantages:

• If the company develops steadily, stock price appreciation often exceeds the cash dividend amount
• Distributing stock is like automatic compound growth, with impressive cumulative effects
• More suitable for long-term investors

Simply put: cash dividends are “cash in hand,” stock dividends are “long-term growth.” The choice depends on your investment horizon and risk preference.

Other Ways of Returning Value: Stock Splits and Share Buybacks

Not all companies choose dividends. Some return value through other methods:

Stock Split — Turning 1 share into 2 or more shares, lowering the share price but maintaining ownership proportion. Lower stock prices may attract retail investors, potentially boosting the stock price and indirectly increasing shareholder wealth.

Share Buyback — The company uses cash to repurchase its own shares, reducing total shares outstanding and increasing net asset value per share. Buybacks also signal that the stock may be undervalued, boosting investor confidence, and often lead to a rise in stock price.

How to Check When a Company Distributes Dividends?

Check the company’s official website

The company will announce dividend decisions, which are usually available on their official site. Some companies also list historical dividend records for reference.

Check the stock exchange

For example, in Taiwan, you can check the Taiwan Stock Exchange official website for ex-dividend and ex-rights notices and calculation tables, covering dividend data for all listed companies since 2003.

Final Thoughts

Dividends are gifts from companies to shareholders, but not the only return. Sometimes, a company’s stock is in an upward trend, and stock price appreciation itself is the best return — even without dividends, shareholders can enjoy capital gains.

Therefore, whether a stock is worth buying depends on both its dividend record and growth prospects. Short-term relies on dividends; long-term depends on growth — that’s the true essence of stock investing.