## Can Stocks with Stock Dividends Really Make You Money? A Complete Explanation of Dividend Distribution Secrets

### Two Ways Shareholders Profit: Cash or Stock?

When investing in a listed company and becoming a shareholder, the most anticipated benefit is dividends. After the company makes a profit and pays off debts, how are the remaining profits distributed to shareholders? There are some nuances here.

Generally, there are two methods: **direct cash dividends** or **free stock issuance**. Cash dividends sound more straightforward, but issuing stock is not insignificant—it's mainly dependent on the company's cash flow and development stage. Paying cash requires the company to have real cash on hand; over-distribution can strain the company's liquidity. Conversely, issuing stock costs much less—so long as the distribution criteria are met, even tight cash flow won't kill the company.

Therefore, stocks with stock dividends often appear in situations like: the company is profitable, wants to reward shareholders, but doesn't want to deplete cash reserves.

### How to Calculate Stock Dividends? Let's take a specific example

Suppose you hold 1,000 shares of a company, and the company announces a stock dividend with a ratio of 1 share for every 10 shares held.

The calculation is simple: **1000 ÷ 10 × 1 = 100 shares**

After the dividend, your holdings become 1,100 shares. It sounds like you gained, but don't rush—since the total share capital increases, your ownership percentage doesn't actually change; your shares are just "diluted."

If instead, the dividend is paid in cash, say 5 yuan per share:

**1000 × 5 = 5,000 yuan in cash**

Before tax (usually 5-10%), you might actually receive around 4,750 yuan.

There is also a mixed distribution method: both stock and cash dividends. For example, issuing 100 shares plus 4,000 yuan in cash means investors receive both benefits simultaneously.

### Why does the stock price drop after ex-dividend?

Before the dividend payout, the stock price might be 66 yuan. After the record date, the next day, the stock price suddenly drops to 56 yuan—that's the "ex-dividend" adjustment.

The principle is simple: **the company pays out 10 yuan in cash, so its net assets decrease by 10 yuan, and the value per share naturally declines**. The calculation is:

**Ex-dividend price = Closing price on record date - Cash dividend per share = 66 - 10 = 56 yuan**

If the company issues stock instead, the total share capital increases, but the total market value remains unchanged, so the value per share decreases—this is called "ex-rights":

**Ex-rights price = Closing price on record date ÷ (1 + rights issue ratio) = 66 ÷ (1 + 0.1) = 60 yuan**

After ex-rights and ex-dividend, the stock price will show a clear gap. Technically, this gap can be filled through "adjusted prices"—either adjusting historical prices downward (pre-adjusted) or current prices upward (post-adjusted).

### Are stocks with stock dividends really better than cash dividends?

Many retail investors feel they gain when receiving stock dividends, but it depends on the situation:

**From a shareholder's perspective, cash dividends are more direct**. You get cash immediately and can decide how to reinvest. Also, paying cash doesn't dilute your ownership, unlike issuing new shares. The downside is that you have to pay taxes, with rates depending on your holding period.

**From a company's perspective, stock dividends cost less**. Paying out cash reduces liquidity and may impact operations. For companies with large financing needs or tight cash flow, forced large cash dividends can lead to liquidity issues.

**In the long run, it depends on the company's fundamentals**. If the company is growing rapidly and its stock price appreciates much faster than the dividend yield, early stock dividends can become highly valuable. So, stocks with stock dividends are more attractive if the company has strong growth prospects—assuming you believe in its future.

Conversely, if the stock price continues to decline after dividend distribution (a phenomenon called "贴权" or "price adjustment"), then it's a real loss. Filling the price gap after dividends is a good sign.

### Other Ways Companies Distribute Dividends

Companies aiming to reward shareholders don't have to limit themselves to dividends.

**Stock splits**: One share becomes two, doubling the total share capital, but the company's overall equity remains unchanged. The share price becomes lower, which can attract retail investors and potentially push the stock price higher.

**Share buybacks**: The company repurchases its own shares with cash, reducing total shares outstanding, increasing earnings per share, and often boosting the stock price. It also signals to the market: "Our stock is undervalued," boosting investor confidence.

### How to Check When a Company Distributes Dividends?

**Check the company's official website**. Listed companies usually announce dividends in advance, and many compile historical dividend records.

**Check the stock exchange**. For example, in Taiwan, the Taiwan Stock Exchange website provides ex-rights and ex-dividend notices and calculations, even showing years of historical dividend data.

Dividends are typically paid once a year (Taiwan stocks), while U.S. stocks pay quarterly. The dividend date is usually after the earnings report is released, depending on when the company discloses its annual report.

### Final Words

Stock dividends fundamentally depend on the company's growth potential. A company that pays dividends regularly might be a mature, stable enterprise; a company that never pays dividends could be in a rapid expansion phase. Both are fine—what matters is that investors understand whether they prefer cash flow or growth potential.

Stocks with stock dividends are not necessarily better than those paying cash, nor are they worse than companies that never pay dividends. The most important thing is to look at the company's fundamentals and your own investment goals.