Confused by stock dividends and cash dividends? One article to help you fully understand how to choose

As a shareholder, when the company makes money, the most期待的就是能分到一杯羹. But how are dividends distributed? Some give you cash, others give you stock. What’s the real difference between these two methods? Today, let’s break it down.

What is the essential difference between stock dividends and cash dividends?

Simply put, one gives you money, the other gives you stock.

Cash dividends mean the company directly deposits profits into your account, which you can spend immediately or reinvest. Stock dividends, on the other hand, do not pay cash but issue new shares out of thin air. Your number of shares increases, but your cash in the account remains unchanged.

For example, you bought 1,000 shares of Cathay Financial. At year-end, the company announces a dividend plan: 1 share for every 10 shares held. You get 50 new shares for free, bringing your total to 1,050 shares. That’s a stock dividend.

If it’s a cash dividend? The company declares 5.2 yuan per share. You’ll receive 1,000×5.2=5,200 yuan, after tax about 4,940 yuan.

Why do companies sometimes choose stock dividends and other times cash?

It depends on the company’s actual situation.

Distributing cash dividends requires a high threshold. The company must not only be profitable but also have sufficient cash reserves. Once the cash is distributed, the company’s liquidity tightens, potentially affecting daily operations or new projects. So generally, large, stable companies with ample cash and steady growth are more willing to pay frequent cash dividends.

Distributing stock dividends is much easier. Regardless of cash on hand, as long as the profit distribution plan is approved, the company can issue new shares to shareholders. For the company, this is essentially zero-cost financing—it rewards shareholders without spending real money.

How to calculate stock dividends? Learn with me, master in 5 minutes

Suppose Company A decides to distribute 1 billion yuan of profit. How to divide it fairly?

Method 1: Pure stock dividends

Company A says, 1 share for every 10 shares. If you hold 1,000 shares, you get (1000÷10)×1=100 new shares. Your total shares increase from 1,000 to 1,100.

Method 2: Pure cash dividends

Company A pays 5 yuan per share. With 1,000 shares, you get 1,000×5=5,000 yuan. But beware—taxes apply. According to tax law, different holding periods have different rates. Assuming a 5% tax rate, your actual net is 5,000×0.95=4,750 yuan.

Method 3: Hybrid distribution

A smart approach. The company pays both cash and stock dividends. For example, every 10 shares get 1 new share, and each share also pays 2 yuan cash. You hold 1,000 shares, so you get 100 new shares plus 2,000 yuan cash—both benefits.

Why does the stock price suddenly “tank”? Understand the ex-dividend and ex-rights process

Before and after dividends are paid, the stock price often drops sharply. This isn’t a problem with the company; it’s a natural mathematical phenomenon.

What is ex-dividend? When the company pays cash dividends, it’s like distributing part of its assets, reducing total net assets. With the total number of shares unchanged, the value per share decreases accordingly, so the stock price adjusts downward. For example, if the pre-dividend price is 66 yuan and the company pays a 10 yuan dividend per share, the post-dividend price becomes 66-10=56 yuan.

What is ex-rights? When the company issues stock dividends, the total number of shares increases, but the total market value remains the same. In other words, your one yuan now represents a smaller “piece” of the company. The stock price is divided by (1 + stock dividend ratio). For example, with a 1-for-10 stock split (ratio 0.1), the ex-rights price = 66 ÷ (1+0.1)=60 yuan.

Both happen together? Yes, the ex-dividend and ex-rights price is calculated as: (66 - dividend payout) ÷ (1 + stock dividend ratio).

Cash or stock? Investors and companies each have their own considerations

From an investor’s perspective: most prefer cash.

The reason is simple—cash in hand is yours, and you can invest freely. It also doesn’t dilute your ownership stake. But the downside is taxes and potential dilution of control.

From a company’s perspective: cash distribution is challenging.

Paying too much cash leaves the company short of funds for R&D or expansion. This is bad for long-term growth. So, companies with tight cash flow or those wanting to retain funds for expansion tend to prefer stock dividends. Plus, it signals to the market: “My growth prospects are good, and I want your shares to grow with me.”

In the long run, stock dividends may yield higher returns.

If the company performs well, stock appreciation often far exceeds the dividend amount. Receiving more shares at a low price and seeing them appreciate later can be highly profitable. Compared to cash dividends, which provide immediate gains, stock dividends are more suitable for long-term investors. That’s why some say issuing stock dividends is actually a good thing.

The dividend distribution schedule you should remember

Public companies usually pay dividends once a year, sometimes semi-annually or quarterly. When do they typically pay?

The process usually goes like this:

• Announcement date: The company announces the dividend plan
• Record date: As long as you hold the stock on or before this date, you’re entitled to the dividend
• Ex-dividend and ex-rights date: Usually the trading day after the record date. Buying on or after this date means you won’t receive this period’s dividend, but selling on this date doesn’t affect your entitlement
• Distribution date: The day dividends are paid or shares are issued

So, you need to catch the record date window. Buying shares before it means the dividend is yours.

A term called “filling the rights,” investors love this

It’s normal for the stock price to drop after dividends are paid, but the subsequent trend depends on the market.

If the price recovers and even exceeds the pre-dividend level, it’s called “filling the rights”. Investors love this because they get both dividends and stock appreciation—double benefits.

Conversely, if the stock price continues to fall after the dividend, it’s called “staying under”. You get the dividend, but the stock’s value shrinks, possibly reducing your overall gains.

Smart investors often buy more shares after dividends when the price is low, betting on the “filling the rights” rebound.

How to check when a company will pay dividends? Three methods

Method 1: Company’s official website

Most large companies post dividend announcements and historical payout records on their official sites. To see how a company has paid dividends in previous years, just search on their website.

Method 2: Stock exchange website

For example, in Taiwan, you can visit the Taiwan Stock Exchange official site, and look for the ex-rights and ex-dividend forecast tables and calculation results. These tables record detailed dividend info for listed companies, covering many years.

Method 3: Trading software

Your brokerage app usually has a dividend inquiry feature. Just search by the company code to see dividend plans and history. The most convenient way.

In summary

Dividends are good for investors, but whether paid in cash or stock involves different considerations. Cash dividends give immediate profit but involve taxes and potential dilution; stock dividends may yield higher long-term returns but require patience. Regardless, the key is to choose high-quality companies that consistently pay dividends and maintain stable payout ratios. After all, companies that can keep paying dividends often indicate solid business performance.