Understand the difference between stock dividends and cash dividends in one article: Which dividend method is more cost-effective?

Two Ways to Distribute Shareholder Dividends

Buying shares of a listed company makes you a shareholder. When the company profits, pays off debts, and covers losses, it usually distributes the remaining profits to shareholders—this is called dividend distribution (dividends).

Dividends are not split equally but are allocated according to the shareholder’s ownership proportion. So, the question is: how many ways are there for a company to distribute dividends? The two common methods are: direct stock issuance and cash deposit into accounts.

The former is called stock dividends (also known as bonus shares), which increases the number of shares held by investors. The latter is cash dividends, where funds are directly credited to the account. Simply put, dividend distribution means the company periodically shares profits with shareholders, and the methods are these two.

Cash Dividends vs Stock Dividends: Why Do Companies Choose These Methods?

The company’s choice of distribution method mainly depends on its cash flow situation.

Distributing cash has high thresholds—the company must be truly profitable, with sufficient cash on hand, and paying out should not affect normal operations. When cash is tight, it can actually impair liquidity.

Issuing stock has lower requirements—as long as the distribution criteria are met, it doesn’t matter whether there is enough cash on the books. This method is especially friendly to growth-oriented companies because it allows them to retain cash for business expansion.

Understand These Dates Before Receiving Dividends

After a company decides to distribute dividends, it usually does so once a year. The dividend plan must be approved by the shareholders’ meeting and disclosed in the financial report. The specific process is:

1. Announcement Date — The company announces the dividend plan
2. Record Date — Confirms the list of shareholders eligible for the dividend; shares bought on or before this date qualify
3. Ex-Dividend Date — Usually the trading day after the record date; shares bought on or after this date do not receive this dividend
4. Distribution Date — The actual day when cash or stock is paid out

How Are Stock Dividends and Cash Dividends Calculated?

Suppose an investor holds 1,000 shares:

Stock Dividend Scenario: The company decides to give 1 share for every 10 shares held

• Shares received = (1000 ÷ 10) × 1 = 100 shares
• Total shares after distribution = 1000 + 100 = 1100 shares

Cash Dividend Scenario: The company decides to pay 5 yuan per share

• Cash received = 1000 × 5 = 5,000 yuan
• After tax (assuming 5%) credited = 5,000 × 0.95 = 4,750 yuan

Mixed Method: Both stock and cash dividends are given

• Receive some new shares and cash simultaneously

How Do Dividends Affect Stock Price?

After dividend announcements, stock prices usually decline, which is normal. The reasons are twofold:

Cash dividends cause “ex-dividend”: After cash is distributed, the company’s net assets decrease, and the asset value per share drops accordingly, leading to a natural decline in stock price.

Stock dividends cause “ex-rights”: When the company issues additional shares to shareholders, the total share capital increases, but the company’s market value remains unchanged. The value per share decreases, causing the stock price to fall.

After ex-dividend/ex-rights, stock prices often show a “gap.” There are two possible trends afterward:

• Rebound / Fill the gap — Stock price recovers to pre-ex-dividend level, increasing shareholder wealth
• Stay below / No fill — Stock price continues to decline, resulting in shareholder losses

Which Should Investors Choose?

Advantages of Cash Dividends:

• Immediate, tangible cash inflow
• Does not dilute your ownership proportion
• Flexibility to hold or reinvest elsewhere

Disadvantages of Cash Dividends:

• Taxation applies, with rates depending on holding period
• Excessive dividends may deplete cash reserves, affecting growth

Advantages of Stock Dividends:

• If the company develops well long-term, stock appreciation can far surpass cash dividends
• No tax payable, profits are fully retained
• Suitable for long-term investors optimistic about the company’s prospects

Disadvantages of Stock Dividends:

• Increased share count with a lower stock price, so short-term gains are not visible
• Patience needed to wait for the price to “fill the gap”

Simple judgment: if you need cash urgently, choose cash dividends; if you believe in the company’s long-term growth and are not in a hurry to cash out, choose stock dividends.

How to Check Company Dividend Information?

1. Official Company Website — Companies publish dividend announcements; some also compile historical dividend records
2. Stock Exchange Websites — For example, in Taiwan, you can check the Taiwan Stock Exchange official site for ex-dividend and ex-rights notices and detailed historical dividend data

While dividends are shareholders’ rights, they are not mandatory for companies. Some companies prefer to use cash for share buybacks or business expansion, which can also provide long-term benefits to investors.