## Two Methods of Profit Distribution: How to Choose Between Cash Dividends and Stock Dividends?

After investors purchase listed company shares, they become shareholders of the company. When the company generates profits, repays debts, and covers historical losses, it typically distributes part of the remaining profits to shareholders, known as **profit distribution** or **dividends**. This distribution is carried out according to the shareholders' ownership proportion or as stipulated in the company's articles of incorporation.

Profit distribution mainly takes two forms: **one is direct cash payout, and the other is free stock issuance**. Understanding the differences between these two methods is crucial for investors to develop their income strategies.

## The Fundamental Difference Between the Two Distribution Methods

**Cash dividends** refer to the company transferring cash directly into investors' accounts, allowing investors to immediately receive cash income. This method requires the company to have sufficient cash reserves on its books; after distribution, it should not threaten the company's normal operational liquidity.

**Stock dividends** (also called bonus shares) involve the listed company issuing new shares to shareholders free of charge, which are deposited into the investors' existing accounts, increasing the number of shares held. This method has a relatively lower threshold; even if cash is insufficient, as long as the distribution conditions are met, it can be executed.

For investors, **how to calculate cash dividends** is more straightforward: number of shares held × cash dividend per share = total cash received. For example, holding 1000 shares with a dividend of 5.2 yuan per share would yield 5200 yuan in cash (after tax, possibly around 4940 yuan).

## Advantages and Disadvantages of Cash Dividends and Stock Dividends

**Advantages of cash dividends** include providing investors with immediate income, allowing funds to be freely reallocated to other investment targets, and not diluting existing equity. Since no new shares are issued, the company's total share capital remains unchanged, and the per-share value stays relatively stable. The downside is that taxes must be paid, with the tax rate depending on the holding period.

**Advantages of stock dividends** include the potential for higher long-term returns if the company develops well and the stock price continues to rise, as the additional shares obtained through bonus issuance may generate returns far exceeding cash dividends. This method is suitable for investors with long-term holding plans. The disadvantage is that it increases the company's total share capital, leading to a mathematical dilution of per-share equity.

From the company's perspective, paying cash dividends reduces available liquidity, potentially constraining new project development; distributing stock allows the company to retain more cash for business expansion and is more advantageous for companies with less liquidity pressure.

## Calculation Methods and Examples of Stock Dividends

The company deciding on distribution will first determine how much profit to allocate, then formulate a stock distribution plan based on specific circumstances.

**Pure stock distribution**: For example, if a company decides to distribute 1 share for every 10 shares held, an investor holding 1000 shares will receive (1000 ÷ 10) × 1 = 100 new shares, increasing their total holdings to 1100 shares.

**Pure cash distribution**: For example, holding 1000 shares with a dividend of 1 yuan per share, the investor receives 1000 yuan in cash (about 950 yuan after tax).

**Mixed distribution**: The company may distribute both stock and cash simultaneously. For example, for every 10 shares, give 1 share and 1 yuan cash. The investor ultimately receives 100 new shares plus 1000 yuan cash.

## How Do Ex-Dividend and Ex-Rights Affect Stock Price?

After dividend distribution, the stock price typically drops significantly, involving two key concepts:

**Ex-dividend** occurs after cash dividends are paid. The company's net assets decrease, and the value of assets per share declines accordingly, causing the stock price to fall. The calculation formula is: ex-dividend price = closing price on the record date - cash dividend per share. For example, if the closing price is 66 yuan and the dividend is 10 yuan, the next day's ex-dividend price would be 56 yuan.

**Ex-rights** occurs after stock dividends are issued. The total share capital increases but the total market value remains unchanged, so the value per share decreases, leading to a lower stock price. The formula is: ex-rights price = closing price on the record date ÷ (1 + rights issue ratio). For example, if the closing price is 66 yuan and 1 share is issued for every 10 shares (rights issue ratio 0.1), the next day's ex-rights price would be 60 yuan.

**For mixed distributions**, the ex-rights and ex-dividend price is calculated as: (closing price on the record date - cash dividend per share) ÷ (1 + rights issue ratio).

## Price Trends After Distribution: "Filling the Rights" and "Underpricing"

The decline in stock price after ex-rights and ex-dividend is not detrimental to investors but is a technical adjustment. Subsequently, the stock price may follow two different trajectories:

**"Filling the rights" or "filling the dividend"**: The stock price rebounds to the level before the ex-rights/ex-dividend. This often occurs because the distribution releases positive signals, conveying to the market that the company is performing well, attracting investors to buy at lower prices, thus pushing the stock price higher. At this point, investors' wealth increases as the stock price rises.

**"Underpricing" or "under-dividend"**: The stock price continues to decline and fails to recover to the pre-distribution level. This reflects market concerns about the company's prospects.

## Distribution Schedule and Inquiry Methods

Listed companies generally pay dividends annually (some adopt quarterly or semi-annual systems), usually 2-4 months after the financial report is released. The distribution process includes:

- **Announcement Day**: The company announces the dividend plan
- **Record Date**: Confirms the list of shareholders eligible for the current distribution; shareholders holding shares before this date qualify
- **Ex-rights/ex-dividend Date**: Usually the trading day after the record date; after this date, new buyers do not enjoy the current distribution
- **Distribution Day**: The official date when dividends are paid out

Investors can check distribution information through three channels: company official announcements, securities exchange market announcements (such as Taiwan Stock Exchange providing pre-announcement and calculation tables), and financial data platforms.

## Alternative Returns for Non-Dividend-Paying Companies

Not all profitable companies choose to pay dividends. Some companies return value to shareholders through other means:

**Stock splits**: Dividing one share into multiple shares, with no change in total equity or shareholder proportion, but increasing the number of shares and decreasing the share price, potentially attracting more investors and indirectly boosting the stock price.

**Share repurchases**: The company buys back its own shares and cancels them or holds them as treasury stock, reducing total share capital and increasing net asset value per share, signaling that the stock is undervalued and boosting investor confidence and stock price.

Overall, in the short term, cash dividends provide immediate income, while in the long term, stock dividends may generate greater returns in a favorable company development environment. Investors should choose flexibly based on their investment cycle and liquidity needs.