## The Truth About Dividends: Stock Dividends vs. Cash Dividends, How Should Investors Choose?

Once you become a shareholder of a listed company, there are multiple ways to earn returns. Besides waiting for stock prices to rise, companies also distribute a portion of their profits back to investors, known as **dividends**. But there are two ways to do this—some companies pay cash directly, while others issue additional stock. Investors often struggle: which one should they choose?

## The Fundamental Difference Between the Two Dividend Types

Public companies distribute profits to shareholders mainly through two channels: **cash dividends or stock dividends**.

**Cash dividends** are straightforward—companies deposit cash into your account, which you can use immediately. But this requires the company to have sufficient cash on hand; after paying dividends, the company’s cash reserves should not be affected to ensure normal operations. Therefore, cash dividends have a higher threshold—they are only paid by profitable companies with ample cash.

**Stock dividends** are much more flexible. The company issues new shares to you free of charge, credited directly to your holdings account, increasing your share count instantly. This method exerts less pressure on the company's cash flow. Even if the company’s cash reserves are insufficient, it can still reward shareholders with stock dividends. For example, if a company declares a 0.5 stock dividend rate, meaning 0.5 new shares for every 10 shares held, then a shareholder with 1000 shares will receive an additional 50 shares.

## Timing and Process of Dividend Distribution

Dividends are usually **distributed once a year**, but some companies choose semi-annual or quarterly payments. Different regions have different practices—Taiwanese stocks mostly pay annual dividends, while U.S. stocks tend to pay quarterly. The dividend distribution date generally follows the release of financial reports.

There are four key dates in the dividend process:

1. **Announcement Date**: The company announces the dividend plan.
2. **Record Date**: The date to determine which shareholders are eligible for dividends; owning shares before this date counts.
3. **Ex-Dividend Date**: Usually the trading day after the record date; buying shares on or after this date means you are not entitled to the current dividend.
4. **Distribution Date**: The date when dividends are officially credited to shareholders’ accounts.

Note that even if you sell your shares, you still enjoy the dividends registered before the record date.

## Practical Methods to Calculate Dividends

**Calculating cash dividends is the simplest:**
Number of shares × Dividend per share = Cash you receive

For example, if you hold 1000 shares and the company pays 5.2 yuan per share, you get 1000 × 5.2 = 5200 yuan. Remember to deduct taxes; if the tax rate is 5%, the actual amount received is 5200 × 0.95 = 4940 yuan.

**Calculating stock dividends is a bit more complex:**
Number of shares ÷ Denominator of the stock dividend ratio × Numerator of the ratio = Number of new shares received

For example, if the company issues 0.5 new shares for every 10 shares held, and you own 1000 shares, then: (1000 ÷ 10) × 0.5 = 50 new shares. After the dividend, your total shares become 1050.

**Mixed dividends are also common:**
Some companies pay both cash and stock dividends. For example, a 0.5 stock dividend rate plus 1 yuan cash per share means holding 1000 shares results in 50 new shares plus 1000 yuan cash.

## Immediate Impact of Dividends on Stock Price

Before and after dividend distribution, stock prices typically experience a noticeable drop. Why?

- For **cash dividends**, the company's total net assets decrease, reducing the asset value per share, which causes the stock price to fall. This process is called **ex-dividend**.

- For **stock dividends**, the total number of shares increases, but the company's market value remains unchanged. The value per share is diluted, leading to a price decline. This process is called **ex-rights**.

Calculations for the impact of dividends on stock price:

- **Ex-dividend price** = Closing price on record date – Cash dividend per share
- **Ex-rights price** = Closing price on record date ÷ (1 + stock dividend ratio)
- **Ex-rights and ex-dividend price** = Closing price on record date – (Cash dividend per share ÷ (1 + stock dividend ratio))

For example, if a stock’s closing price on the record date is 66 yuan, and the company declares a 0.5 stock dividend ratio plus 1 yuan cash dividend, the next day’s ex-dividend/ex-rights price would be (66 – 1) ÷ (1 + 0.5) = 43.3 yuan.

The price gap is a normal technical adjustment and does not mean investors are losing money. To see the true trend of price movements, you can perform a **re-adjustment** (or "restoration") of the stock price.

## Which Should Investors Choose?

It depends on your investment goals.

**Advantages of cash dividends:**
Money in hand, ready to use immediately. Paying cash does not increase the total number of shares, so your ownership percentage is not diluted. If the company underperforms, at least the cash is already in your pocket.

**Disadvantages of cash dividends:**
Taxation applies, with rates depending on how long you hold the shares. For the company, paying cash has a high threshold—it consumes cash reserves, which may limit expansion and R&D investments.

**Advantages of stock dividends:**
If you hold long-term and the company develops well with rising stock prices, the gains from stock dividends can far surpass cash dividends. Issuing stock does not hurt the company’s cash flow and can promote business growth and share price appreciation.

**Disadvantages of stock dividends:**
In the short term, you don’t see cash income; you need the stock price to rise to realize gains. If the stock price drops after the dividend, your investment may shrink.

In simple terms, if you are a short-term investor or risk-averse, cash dividends are more reassuring; if you believe in the company’s prospects and plan to hold long-term, stock dividends have greater potential.

## Will the Stock Price Fill or Drop After Dividends?

Before and after dividends, stock prices will inevitably decline, but what happens afterward depends on the company.

If the stock price recovers to the pre-dividend level, it’s called **price or dividend fill**—investors’ wealth increases as the stock price rises.

If the stock price continues to fall after the dividend, it’s called **price or dividend discount**—investors may face losses.

Whether the price fills depends mainly on the company’s fundamentals and market confidence. Dividends are generally a positive signal, indicating good management and attracting buyers. However, if the company’s subsequent performance disappoints, the stock may not recover.

## How to Check a Company’s Dividend Plan?

**Method 1: Company Website**
Public companies publish dividend announcements on their official websites, detailing dividend amounts, timing, ex-dividend dates, etc. Many large companies also compile historical dividend records for investors to review.

**Method 2: Stock Exchange**
For example, in Taiwan, listed companies’ announcements can be found on the Taiwan Stock Exchange’s official website, including ex-rights and ex-dividend notices and calculation tables. These tables often include years of dividend data, helping you understand a company’s dividend history.

**Method 3: Financial Information Platforms**
Many brokerage firms and financial websites offer tools to check dividend dates and amounts. Some also analyze historical dividend data, helping you assess whether a company maintains stable dividends.

## Final Words

Dividends are a way for companies to reward shareholders, but they are not the only method. Some companies may also use stock splits (increasing shares and lowering share price to attract more investors) or share buybacks (reducing total shares and boosting per-share value) to return value. Regardless of the method, the core idea is to increase investors’ long-term returns.

Choosing between cash and stock dividends ultimately depends on your risk tolerance, investment horizon, and outlook on the company. Don’t blindly chase the highest dividend payout; the key is to find a company that matches your investment style.