Comprehensive Guide to Dividend Calculation: Stock Dividends vs Cash Dividends, Understand the Dividend System Once and for All

Things to Know Before Starting: What Is the Essence of Dividends?

Listed companies, after earning profits, deduct debt repayments and accumulated losses from previous years, and then return the remaining profits to shareholders in the form of dividends. This is an important way for shareholders to receive returns and a commitment for companies and investors to share the results. Depending on the shareholding amount or company regulations, the dividend amounts received by different shareholders vary.

There are mainly two ways to distribute dividends: stock dividends and cash dividends. Understanding the differences between these two methods and the logic of dividend calculation is crucial for optimizing investment strategies.

Two Main Directions of Dividend Calculation: Stock Dividends vs. Cash Dividends

What are stock dividends? How is dividend calculation performed?

Stock dividends refer to the company’s direct issuance of free new shares to shareholders. The new shares are credited to the investor’s account, increasing the total number of shares held, commonly known as bonus shares.

Dividend Calculation Example (Stock Dividends):
Suppose an investor holds 1,000 shares of a company, which decides to distribute 1 share for every 10 shares held (i.e., a distribution ratio of 0.1):

New shares = (1000 ÷ 10) × 1 = 100 shares
Investor’s total shares = 1000 + 100 = 1100 shares

The company’s threshold for issuing stock dividends is relatively low; as long as the distribution conditions are met, it can be executed without considering whether there is enough cash on hand. This method preserves cash flow, which is beneficial for the company’s capital turnover and business expansion.

How to Calculate Cash Dividends

Cash dividends refer to directly distributing cash to investors’ accounts, also called dividend payout or redemption of dividends.

Dividend Calculation Example (Cash Dividends):
Suppose an investor holds 1,000 shares, and the company decides to pay 5.2 yuan per share:

Cash dividend receivable = 1000 × 5.2 = 5200 yuan
After deducting 5% tax, actual credited amount = 5200 × 0.95 = 4940 yuan

Paying cash dividends requires the company to have sufficient earnings and cash reserves, but it does not affect the total share capital. The investor’s ownership proportion remains unchanged, with no risk of dilution.

Hybrid Dividend Calculation: Stock + Cash

Some companies distribute both stock and cash dividends simultaneously. Suppose an investor holds 1,000 shares, and the company issues 1 stock for every 10 shares and pays a dividend of 4 yuan per share:

• Stock dividend portion = (1000 ÷ 10) = 100 shares
• Cash dividend portion = 1000 × 4 = 4000 yuan
• Final receipt = 100 new shares + 4000 yuan in cash

Why Do Ex-Dividend and Ex-Rights Occur? Price Adjustment After Dividend Calculation

Difference Between Ex-Dividend and Ex-Rights

Ex-dividend occurs after cash dividends are distributed. The company’s net assets decrease, and the net asset value per share drops accordingly, leading to a decrease in stock price:

Ex-dividend price = Closing price on the record date - cash dividend per share

Example: Company A’s closing price on the record date is 66 yuan, and it pays a dividend of 10 yuan per share → Next day’s ex-dividend price = 66 - 10 = 56 yuan

Ex-rights occurs after stock dividends are distributed. The total share capital increases, diluting the value per share, and the stock price declines:

Ex-rights price = Closing price on the record date ÷ (1 + distribution ratio)

Example: Company A’s closing price on the record date is 66 yuan, and it issues 1 new share for every 10 shares (distribution ratio 0.1) → Next day’s ex-rights price = 66 ÷ 1.1 ≈ 60 yuan

Mixed Ex-Rights and Ex-Dividend: Involves simultaneous distribution of cash and stock:

Ex-rights and ex-dividend price = (Closing price on the record date - cash dividend per share) ÷ (1 + distribution ratio)

Example: Company A’s closing price on the record date is 66 yuan, and it issues 1 share for every 10 shares and pays a 1 yuan dividend → Next day’s ex-rights and ex-dividend price ≈ (66 - 0.1) ÷ 1.1 ≈ 59.9 yuan

Practical Considerations for Investors After Dividend Calculation

Rights Offering vs. Ex-Rights, Can Dividends Bring Returns?

After ex-dividend and ex-rights, the stock price drops, making the stock “cheaper.” The market’s reaction at this point determines whether investors profit:

Rights Offering/Dividend Yielding Scenario:
Stock price rises afterward to the level before ex-dividend/ex-rights, increasing investor wealth as the stock price increases.

Ex-Rights/Ex-Dividend Loss Scenario:
Stock price continues to decline, and investors face losses.

The act of distributing dividends is essentially a positive signal, conveying that the company is performing well. When investors are optimistic about the company’s prospects, they are generally willing to buy at lower prices, pushing the stock price back up. However, if the company’s fundamentals weaken, even dividends cannot support the stock price.

Tax Considerations in Dividend Calculation

Cash dividends are subject to personal income tax, with rates depending on the holding period. For example, long-term investors may enjoy lower tax rates.

Stock dividends are not taxed immediately, but future sales are taxed on the profit portion. From a cash flow perspective, stock dividends are more investor-friendly.

Stock Dividends vs. Cash Dividends: How Should Investors Choose?

Pros and Cons Analysis for Investors

Advantages of Cash Dividends:

• Immediate receipt, tangible gains
• Freedom to reinvest as desired
• Does not dilute ownership proportion

Disadvantages of Cash Dividends:

• Tax payable reduces actual gains
• Reduces company cash reserves, potentially impacting future growth

Advantages of Stock Dividends:

• No immediate tax, defers tax payment
• Compound growth effect is significant, long-term returns are substantial
• Company retains cash for business expansion

Disadvantages of Stock Dividends:

• Increase in share count causes nominal dilution of ownership
• Must wait for stock price appreciation to realize gains

Long-term Investment Perspective

If a company develops well, the gains from stock appreciation far exceed the dividends themselves. Investors who receive stock dividends over many years can accumulate considerable wealth through compound effects. Compared to the “cash in hand” approach of cash dividends, stock dividends are more suitable for patient, long-term shareholders.

Conversely, if investors need regular cash flow or are pessimistic about the company’s prospects, cash dividends are more appropriate.

How to Check Dividend Calculation Information and Historical Dividend Records?

Official Channels for Inquiry

1. Company Website
Public companies regularly publish dividend announcements, and some also compile historical dividend records for investor reference.

2. Stock Exchange Platforms
For example, in Taiwan, investors can check the ex-rights and ex-dividend notices and calculation results on the Taiwan Stock Exchange’s official website under the Market Announcements section. The results table records complete dividend data since May 5, 2003.

3. Brokerage Platforms
Most online brokers provide real-time dividend payout dates and rates, allowing investors to check by logging into their accounts.

Corporate Strategies Behind Dividend Policies

Not all profitable companies pay stable dividends every year. If a company has major projects or expansion plans, it may retain earnings even if profitable. In such cases, the company might choose stock splits or stock buybacks as ways to reward shareholders.

Stock Split:
Dividing 1 share into 2 or more shares, increasing the number of shares held but keeping ownership proportion unchanged. The share price decreases accordingly, potentially attracting more investors.

Stock Buyback:
The company repurchases its own shares for cancellation, reducing total shares outstanding, increasing earnings per share, and signaling that the stock is undervalued, which can drive the stock price higher.

Mastering the methodology of dividend calculation and understanding the differences between stock and cash dividends can help investors make decisions aligned with their investment goals. Regardless of the choice, decisions should be based on the company’s fundamentals, personal risk tolerance, and capital needs.