How to Calculate Stock Dividends? Understand the Dividend Distribution Methods, Calculation Formulas, and Ex-Rights Traps in One Article

Dividends or Cash Payments? Two Ways for Listed Companies to Give Back

When a listed company makes a profit, it usually rewards shareholders. This reward is called dividend distribution, and there are mainly two types: cash dividends and stock dividends.

Cash dividends are called cash dividends (dividend payout), where the company directly deposits money into your account. Stock dividends are called stock dividends (bonus shares), where the company issues additional shares to your account free of charge, increasing your total shareholding.

Which method is better depends on the company’s situation. Cash dividends require the company to be profitable and have ample cash on hand; otherwise, it may affect liquidity. Stock dividends have a lower threshold; as long as the distribution criteria are met, they can be issued even if cash is tight.

How to Calculate Stock Dividends? Three Methods in One View

Listed companies decide how much money to allocate based on distribution ratios, then calculate how much each shareholder can receive based on their shareholding.

Calculation of pure stock dividends

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

Number of shares distributed = （1000 ÷ 10）× 1 = 100 shares

Your total shares after distribution = 1000 + 100 = 1100 shares

Calculation of pure cash dividends

Suppose you hold 1000 shares of Hon Hai, and the company pays NT$5.2 per share:

Cash payout = 1000 × 5.2 = NT$5200

Actual credited amount = 5200 × (1 - tax rate 5%) = NT$4940

Hybrid dividends

Some companies distribute both stock and cash. For example, a company decides to give 1 share for every 10 shares and NT$1 cash per share. If you hold 1000 shares, you will receive:

• Stock dividend: 100 shares
• Cash dividend: NT$1000

When Are Dividends Paid? Key Dates You Can’t Miss

Most companies pay dividends annually; in Taiwan, most are annual, while in the US, quarterly payments are common. Dividends are usually paid after the financial report is announced.

The dividend payout process includes four important dates:

Announcement Date: The company announces the dividend plan

Record Date: Determines which shareholders are eligible for dividends. As long as you hold shares before (and including) this date, you qualify for the dividend

Ex-dividend/Ex-rights Date: Usually one trading day after the record date. Buying shares on this day means you do not receive this period’s dividend but can trade the shares

Payment Date: The official day dividends are paid

How to Calculate Ex-rights and Ex-dividends? Master These Three Formulas

After ex-rights/ex-dividends, the stock price will experience a gap, requiring formulas to calculate the new price.

Ex-dividend price (cash only)

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

Example: Company A’s closing price on record date is NT$66, and it pays NT$10 cash per share. Next day, the ex-dividend price = 66 - 10 = NT$56

Ex-rights price (stock only)

Ex-rights price = Closing price on record date ÷ (1 + Rights issue ratio)

Example: Company A’s closing price on record date is NT$66, and it issues 1 share for every 10 shares (rights issue ratio 0.1). Next day, the ex-rights price = 66 ÷ (1 + 0.1) = NT$60

Ex-rights and dividends price (both stock and cash)

Ex-rights and dividends price = (Closing price on record date - Cash dividend per share) ÷ (1 + Rights issue ratio)

Example: Company A’s closing price on record date is NT$66, and it issues 1 share for every 10 shares plus NT$1 cash. Next day, the ex-rights and dividends price = (66 - 1) ÷ (1 + 0.1) = NT$59.09

Why Does the Stock Price Drop After Payout? Are Shareholders’ Rights Diluted?

The stock price drops after dividends, but this does not mean losing money.

In the case of cash dividends (ex-dividend): The company’s net assets decrease, and the net asset value per share also decreases, leading to a drop in stock price.

In the case of stock dividends (ex-rights): The company issues new shares, increasing total share capital, but the total market value remains unchanged. Therefore, the value per share decreases, causing the stock price to fall.

The key point is: Dividends themselves do not directly increase investors’ wealth; they only send a positive signal—that the company is developing well. This signal can boost investor confidence, attract more buyers, and push up the stock price.

The stock price movement after ex-rights/ex-dividends depends on “filling the gap” (fill rights/interest) or “discounting” (stick rights/interest):

• Fill rights/interest: The stock price recovers to pre-ex-rights/ex-dividends levels
• Discount rights/interest: The stock price continues to decline

Only when fill-the-gap occurs will investors’ wealth increase with rising stock prices.

Stock Dividends vs Cash Dividends: Which Is More Beneficial for Investors?

Both dividend methods have pros and cons.

Advantages of cash dividends: Investors receive cash, which they can freely allocate, without diluting their equity. However, cash dividends are taxable, with rates depending on the holding period.

Disadvantages of cash dividends: They are costly for the company. Paying cash reduces available cash flow, potentially affecting liquidity and limiting new projects.

Advantages of stock dividends: Friendly to the company, as they do not consume cash. In the long run, if the company develops well, the gains from stock appreciation far exceed cash dividends. Stock dividends are more suitable for long-term investors.

Disadvantages of stock dividends: They increase total share capital, diluting earnings per share. Investors need to wait for fill-the-gap to realize gains.

Overall, in the short term, cash dividends are more tangible; in the long term, stock dividends have greater potential.

How to Check a Listed Company’s Dividend Records?

Method 1: Company Website

Companies publish dividend announcements on their official websites. Some also compile historical dividend records for investors, such as TSMC, Occidental Petroleum, etc., providing detailed payout data.

Method 2: Stock Exchange

For Taiwanese listed companies, you can check the Taiwan Stock Exchange official website’s market announcements for ex-rights/ex-dividends notices and calculation tables. These tables include comprehensive dividend data of recent years, making tracking and comparison easier.

Other Ways of Giving Back Besides Stock Dividends

Not all companies reward shareholders through dividends. Some adopt other methods:

Stock Split: Dividing one share into multiple shares, increasing share capital but lowering the share price. This can attract more investors and indirectly boost the stock price.

Share Repurchase: The company buys back its own shares and cancels them, reducing total share capital, increasing earnings per share and net asset value per share, and pushing up the stock price. Buybacks also signal to the market that the stock is undervalued, boosting investor confidence.

If a company’s stock is in a strong upward trend, the returns from rising stock prices often surpass dividend income.