A comprehensive analysis of listed company dividends: stock dividends vs. cash dividends, which should investors choose?

What Exactly Is Dividends?

When a publicly listed company performs well and has profits on its books, management usually distributes part of the earnings to shareholders as a return. This is what we commonly refer to as dividends (profit distribution).

Dividends are one of the core ways shareholders profit. Different shareholders receive different amounts of dividends depending on their shareholding proportion, generally distributed based on the number of shares held or as stipulated in the company’s articles of incorporation.

But here’s an important question: What does a company use to pay dividends? Is it direct cash, or issuing new shares?

Comparing Two Types of Dividends: Cash Dividends vs Stock Dividends

Cash dividends (dividend payout, distribution)

The company directly transfers cash into shareholders’ accounts. If you hold 1000 shares and the company announces a dividend of 1 yuan per share, you will receive 1000 yuan (after tax).

Advantages from an investor’s perspective:

• Cash in hand, free to use
• Does not dilute existing ownership proportion
• Immediate returns

Disadvantages from an investor’s perspective:

• Personal income tax may apply (depending on holding period)
• Cash decreases in the account after dividend payout, requiring reinvestment to grow further

Stock dividends (bonus shares)

The company issues new shares to shareholders free of charge. If the company announces a 10-for-1 stock dividend, your original 1000 shares will increase to 1100 shares, but the value per share will adjust accordingly.

Advantages from an investor’s perspective:

• Enjoy long-term compound growth
• Increased number of shares, potential for higher gains if stock price rises later
• No tax issues

Disadvantages from an investor’s perspective:

• Ownership stake may be diluted
• Liquidity may be limited

Considerations for corporate choice

Cash dividends require high corporate earnings—sufficient surplus and cash on hand. Stock dividends have a lower threshold; even if cash is tight, companies can implement them, exerting less pressure on liquidity.

Therefore, many high-growth companies prefer stock dividends, while mature and stable companies tend to choose cash dividends.

How Are Dividends Calculated? Practical Case Studies

Pure Stock Dividend Example

A company announces a 1-for-10 stock dividend:

• Original holdings: 1000 shares
• Dividend ratio: 0.1
• New shares issued: 1000 ÷ 10 × 1 = 100 shares
• Total shares after dividend: 1000 + 100 = 1100 shares

Pure Cash Dividend Example

A company announces a cash dividend of 5.2 yuan per share:

• Original holdings: 1000 shares
• Cash dividend: 1000 × 5.2 = 5200 yuan
• After 5% tax deduction, received: 5200 × 0.95 = 4940 yuan

Mixed Dividend Example

Some companies combine dividends—paying both cash and issuing new shares:

• Stock dividend of 1 yuan plus cash dividend of 4 yuan
• Balances sufficient cash with incentives for long-term holders
• Investors receive both cash and new shares simultaneously

When Do Dividends Arrive? Overview of Distribution Process

Public companies usually distribute dividends annually or quarterly, following this process:

→ Announcement Date: Company announces dividend plan
→ Record Date: Identifies eligible shareholders (ownership before this date qualifies)
→ Ex-dividend Date: Stock price adjusts technically; buying after this date does not entitle to this dividend
→ Distribution Date: Dividends are officially credited

The interval typically ranges from 1 to 2 months, depending on the company’s financial reporting schedule.

Why Does the Stock Price Drop After Ex-Dividend and Ex-Rights?

This involves two core concepts:

Ex-dividend (cash dividend payout)

After paying cash, the company’s total assets decrease, and the net asset value per share also declines. With no change in share capital, the stock price is pulled down.

Calculation formula: Ex-dividend price = Closing price on record date - Cash dividend per share

Example: If the closing price on the record date is 66 yuan and the dividend is 10 yuan per share, the next day’s ex-dividend price = 66 - 10 = 56 yuan

Ex-rights (stock dividend)

After issuing new shares, the total share capital increases, but the company’s total market value remains roughly the same in the short term, causing the value per share to decrease, and the stock price to fall accordingly.

Calculation formula: Ex-rights price = Closing price on record date ÷ (1 + stock dividend ratio)

Example: If the closing price on the record date is 66 yuan, and the stock dividend ratio is 0.1 (10-for-1), the next day’s ex-rights price = 66 ÷ 1.1 = 60 yuan

( Mixed dividend scenario

Calculation formula: Ex-rights and dividends price = (Closing price on record date - cash dividend per share) ÷ (1 + stock dividend ratio)

To Fill or Not to Fill? How to Judge Investors’ Real Gains

The price drop after ex-rights and ex-dividends is normal technical adjustment; the key is the subsequent trend:

Fill the rights: The stock price rises back to pre-dividend levels, realizing actual profit for investors

Remain discounted: The stock price continues to fall, resulting in actual loss

The real benefit from dividends depends on stock price performance afterward. A fundamentally sound company with active dividend payments often attracts more buying after dividends, pushing the price back up (filling the gap). Conversely, companies with weakening fundamentals tend to remain discounted.

Stock Dividends vs Cash Dividends: Which Is More Profitable?

Short-term view: Cash dividends are more direct, but taxed and offer limited returns

Long-term view: If the company performs well, stock dividends allow you to enjoy the appreciation from additional shares, often far exceeding fixed cash dividend returns. A classic example is some tech giants issuing multiple stock dividends over 20 years, multiplying investors’ shareholdings many times.

Optimal choice:

• Investors needing immediate cash flow → prefer cash dividends
• Long-term value investors → prefer stock dividends
• Conservative investors → choose blue-chip stocks with stable dividends

How to Check a Company’s Dividend Information?

) Channel 1: Company Website
Most listed companies publish dividend announcements on their official websites; some also maintain historical dividend records for inquiry.

Channel 2: Stock Exchange

For example, in the Taiwan market, you can check the ex-rights and ex-dividend forecast tables and calculation results on the Taiwan Stock Exchange website, covering several years of dividend data.

( Channel 3: Stock Trading Software
Most brokerage trading platforms integrate dividend calendars and historical dividend data, allowing one-click inquiries.

How Do Companies That Don’t Pay Dividends Reward Shareholders?

Not all profitable companies pay dividends. High-growth firms often reinvest profits into R&D and expansion, choosing other ways to reward shareholders:

Stock splits — splitting 1 share into 2 or more, lowering the share price threshold, attracting more buyers, and indirectly boosting the stock price

Share buybacks — the company repurchases its own shares with cash and cancels them, reducing total shares outstanding and increasing earnings per share, signaling to the market that the stock is undervalued

These methods also help create wealth for long-term shareholders.

Key Takeaways

Dividends are a profit-sharing mechanism between companies and shareholders. Cash dividends and stock dividends each have advantages and disadvantages; companies choose based on their financial situation, and investors should select dividend-paying companies aligned with their investment goals. Ultimately, the returns depend on the company’s fundamentals and subsequent stock price performance. Investing in stable, well-established companies with a consistent dividend history and solid fundamentals, and holding long-term, is the right approach to profit from dividends.