Complete Guide to Stock Dividends: From Calculation to Selection, Essential Dividend Knowledge for Investors

The Essence of Dividends: How Companies Reward Shareholders

When a publicly listed company makes a profit, it typically allocates the remaining earnings to shareholders after paying off debts and covering losses. This is known as dividend distribution or dividend payout. The amount of dividends shareholders receive depends on the number of shares they hold and the company’s articles of incorporation.

But there are multiple ways to distribute dividends. Some companies pay cash directly to shareholders, called cash dividends or dividend payouts; others issue bonus shares at no cost, depositing new stock into shareholders’ accounts, known as stock dividends or stock bonuses. The choice depends on the company’s actual situation.

Distributing cash dividends requires higher thresholds, as the company must have sufficient profits and cash reserves; otherwise, it could impact operational liquidity. In contrast, issuing stock dividends is much more flexible—if the company meets the distribution criteria, it can proceed even with tight cash flow, which is why many growth-oriented companies prefer this method.

How Should Investors Choose? Cash Dividends vs Stock Dividends

Most investors prefer cash dividends because once received, they can decide how to reinvest freely, and the company does not issue additional shares, avoiding dilution of investor rights. However, the downside is that dividends are taxable, with rates linked to the holding period.

For companies, cash dividends are more burdensome. After payout, cash reserves decrease, liquidity drops, potentially limiting new project development or even causing cash flow difficulties.

In the long run, if the company develops well, stock price appreciation often far exceeds cash dividends. Stock dividends are suitable for long-term investors—they focus on future earnings rather than immediate cash.

Dividend Schedule and Distribution Process

Taiwanese stocks generally distribute dividends annually, while US stocks typically pay quarterly. The dividend plan must be approved at the shareholders’ meeting and disclosed in the financial report. The timing varies: if the annual report is released in February, dividends might be received in April; if in April, then in June.

Not all profitable companies pay dividends every year. If a company has large projects or needs substantial capital expansion, it may choose not to pay dividends even if it has profits.

Four Key Dates for Dividend Distribution

Announcement Date: The company announces the dividend payout news.

Record Date: The date to determine shareholders eligible for dividends; as long as you hold shares before or on this date, you are entitled to receive dividends.

Ex-Dividend/Ex-Rights Date: Usually one trading day after the record date. After this date, buying shares does not entitle the buyer to the current period’s dividends.

Distribution Date: The official day dividends are paid out. Shares can still be traded on the ex-dividend date, and selling shares does not affect entitlement to dividends.

Practical Calculation of Stock Bonus Rate and Dividend Payout

Stock Dividend Calculation

Suppose an investor holds 1000 shares of Cathay Financial, and the company decides to distribute 1 share for every 10 shares held (bonus ratio 0.1):

Dividend shares = (1000 ÷ 10) × 1 = 100 shares

The investor’s account now has 1000 + 100 = 1100 shares.

Cash Dividend Calculation

Suppose an investor holds 1000 shares of Hon Hai, with a cash dividend of NT$5.2 per share:

Cash dividend = 1000 × 5.2 = NT$5200

After deducting 5% tax, the actual received amount is NT$5200 × 0.95 = NT$4940.

Mixed Dividend Calculation

If Hon Hai distributes both stock and cash dividends:

Stock dividend = (1000 ÷ 10) × 1 = 100 shares

Cash dividend = 1000 × 4 = NT$4000

Ultimately, the investor receives 100 shares + NT$4000 in cash.

How to Calculate Ex-Rights/Ex-Dividend Price?

Ex-Dividend Price (Cash Only)

Ex-dividend price = Record date closing price - per-share cash dividend

Example: Company A’s record date closing price is NT$66, and the dividend per share is NT$10. The next day, the ex-dividend price = 66 - 10 = NT$56.

Ex-Rights Price (Stock Only)

Ex-rights price = Record date closing price ÷ (1 + bonus ratio)

Example: Company A’s record date closing price is NT$66, and it distributes 1 share for every 10 shares (bonus ratio 0.1). The 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 = (Record date closing price - per-share cash dividend) ÷ (1 + bonus ratio)

Example: Company A’s record date closing price is NT$66, with a 1-for-10 stock bonus and NT$1 cash dividend per share, bonus ratio 0.1, cash dividend NT$0.1. The next day, the ex-rights and dividends price = (66 - 0.1) ÷ (1 + 0.1) = NT$59.9.

Why Does the Stock Price Drop After Dividends? Fill-Back vs. Discount

After dividends are paid, stock prices usually decline due to two combined mechanisms:

Ex-Dividend: The company distributes cash, reducing net assets; the net asset value per share decreases, leading to a drop in stock price.

Ex-Rights: The company issues new shares; although shareholders’ total number of shares increases, the value per share is diluted, causing a price decline.

This creates a gap in the stock price chart. To maintain continuity, adjustments are made: Pre-adjusted (forward) rights lower the price to the current level before dividends; Post-adjusted (backward) rights raise the price back to the previous level after dividends.

Post-dividend stock price movements:

Fill-Back / Fill-Price: The stock price rises back to pre-dividend levels, increasing investor wealth.

Discount / Discount-Price: The stock price continues to decline, falling below pre-dividend levels, leading to investor losses.

Dividends themselves only signal that the company is developing well; they do not directly increase investor wealth. The real gains come from stock price appreciation during fill-back periods.

Other Ways Non-Dividend Companies Reward Shareholders

Not all high-quality companies pay dividends. Some choose stock splits or share repurchases to reward shareholders.

Stock Split: One share splits into multiple shares; shareholders’ total shares increase, and the share price decreases proportionally, but their ownership percentage remains unchanged. Lower share prices can attract more retail investors, boosting the stock price and indirectly increasing shareholder wealth.

Share Repurchase: The company buys back its own shares and cancels them, reducing total shares outstanding and increasing earnings per share. It also signals to the market that the stock is undervalued, boosting investor confidence.

Quick Methods to Check Dividend Information

Company Website

Public companies publish dividend announcements on their official websites, and many also compile historical dividend records for reference.

Stock Exchange

For Taiwanese listed companies, the Taiwan Stock Exchange website provides ex-rights/ex-dividend notices and calculation tables. The calculation tables include all dividend data from May 5, 2003, to the present, allowing detailed inquiry into each company’s dividend history.

Dividends are not immediate investment gains but require long-term stock price appreciation to generate compound effects. Understanding the dividend mechanism helps investors seize opportunities during fill-back periods.