Understanding Stock Dividends: A Must-Know Guide to Dividend Mechanisms and Calculation Methods

Methods of Returns from Investing in Stocks

Listed companies typically reward shareholders after profits are made, which is called dividend distribution. There are two main ways to distribute dividends: one is paying out cash directly, called cash dividends; the other is issuing additional shares to shareholders, known as stock dividends or bonus shares. The company’s choice depends on its financial situation. Paying cash dividends requires sufficient cash flow, while issuing stock dividends has relatively relaxed conditions—so long as the distribution criteria are met, it can be executed.

Whether shareholders can participate in the dividend depends on the record date. As long as they hold the company’s stock on or before this date, they can enjoy the dividend for the current period. The ex-dividend and ex-rights date is the trading day after the record date; stocks purchased on this day cannot participate in the current distribution.

How Much Is 1 Yuan of Stock Dividend? Detailed Calculation Method

Cash Dividend Calculation

Suppose an investor holds 1,000 shares of a company, and the company decides to distribute a cash dividend of 5.2 yuan per share, then:

Cash Dividend = 1,000 shares × 5.2 yuan/share = 5,200 yuan

Note that cash dividends are subject to personal income tax, with the tax rate depending on the holding period. If the tax rate is 5%, the actual amount received is 5,200 × 0.95 = 4,940 yuan.

Stock Dividend Calculation

If the company adopts the stock dividend method, announcing a 10-for-1 bonus (i.e., 1 share for every 10 shares held), an investor holding 1,000 shares will receive:

Number of shares issued = (1,000 shares ÷ 10) × 1 = 100 shares

After distribution, the investor’s total shares increase to 1,100. This method does not involve cash outflow and is not subject to income tax.

Mixed Distribution Method

In practice, some companies use both methods simultaneously. For example, issuing 1 bonus share for every 10 shares and paying a cash dividend of 4 yuan per share, then:

• Stock dividend: (1,000 ÷ 10) = 100 shares
• Cash dividend: 1,000 × 4 = 4,000 yuan
• Total return: 100 shares + 4,000 yuan in cash

How to Calculate the Ex-Dividend and Ex-Rights Price

After dividend distribution, the stock price is adjusted. If the cash dividend is 10 yuan per share and the closing price on the record date is 66 yuan, then the ex-dividend price is:

Ex-dividend price = 66 - 10 = 56 yuan

If only stock dividends are issued, with a 10-for-1 bonus (distribution ratio 0.1), the ex-rights price is:

Ex-rights price = 66 ÷ (1 + 0.1) = 60 yuan

For a mixed distribution, the calculation formula is:

Ex-rights and ex-dividend price = (66 - cash dividend per share) ÷ (1 + bonus ratio)

Balancing Stock Dividends and Cash Dividends

How Investors Choose

Most investors prefer cash dividends because, after payout, the funds can be freely allocated to other investments. Cash dividends do not increase the company’s share capital, so shareholders’ equity is not diluted. However, cash dividends are taxed, which directly reduces actual returns.

Stock dividends, on the other hand, are tax-free. In the long run, if the company develops well, the appreciation of stock value often yields returns far exceeding cash dividends. For long-term investors, stock dividends allow for the benefit of compound growth.

Considerations for Companies Distributing Dividends

Cash dividends put pressure on a company’s cash flow; after paying dividends, the remaining funds for business expansion and new projects decrease. Companies with liquidity constraints that over-distribute cash may face operational difficulties. Stock dividends do not consume cash and are suitable for companies with tight funds but wanting to reward shareholders.

Actual Impact of Dividend Distributions on Stock Price and Investors

Price Movement After Ex-Dividend and Ex-Rights

Once dividends are declared, the stock price typically experiences a technical decline. Cash dividends reduce the company’s net assets, leading to a decrease in per-share value—this is called “ex-dividend”; issuing additional shares expands the total share capital, and the value per share relatively decreases—this is called “ex-rights.”

On the ex-dividend and ex-rights date, the stock price often shows a clear gap. Investors can use the cum-rights and cum-dividend methods to view the trend charts. The pre-adjusted (forward) price converts past prices to the current price, while the post-adjusted (backward) price converts the current price to historical benchmarks.

Adjustment for Rights and Puts

After dividends, stock prices may show two types of trends. If the price recovers to the pre-dividend level, it is called “fill” or “fill rights”; if it continues to decline, it is called “drop” or “drop rights.” Dividends themselves are just capital transfers and do not directly create wealth. The rise in stock price depends on market expectations of the company’s prospects—dividends send a positive signal of stable profits, encouraging investors to buy when prices dip, thereby pushing the stock price higher.

Dividend Distribution Process and Inquiry Methods

Public companies generally adopt an annual dividend system (some use quarterly), with plans approved by shareholders’ meetings and disclosed in financial reports. The interval from dividend announcement to actual payout usually spans several months, depending on the timing of financial report releases.

Investors can check dividend information through three channels:

Corporate Website: Listed companies publish dividend announcements and compile historical dividend records.

Stock Exchange: For example, in Taiwan, investors can check the Taiwan Stock Exchange official website for ex-rights and ex-dividend notices and calculation tables, to understand each company’s dividend details.

Investment Software and Financial Platforms: Most brokerage platforms integrate dividend calendars, making it easier for investors to track.

Dividend distribution is one way for companies to reward shareholders but not the only way. Some companies implement stock splits or buyback plans, which can also enhance investor returns. High-quality companies that do not pay dividends but continue to grow can also generate substantial gains through stock price appreciation. Investors should evaluate their personal investment goals and risk tolerance to flexibly balance dividends and capital gains.