## The Big Difference Between Stock Dividends and Cash Dividends: Which Should You Choose?

As a shareholder, when the listed company’s annual or quarterly profits are announced, the company usually returns part of the profits to investors. But there are two ways to distribute this return: one is to directly deposit money into your account, and the other is to give you additional shares out of thin air. Which one is truly a good thing? Let’s break it down one by one.

### What is the fundamental difference between stock dividends and cash dividends?

The methods of dividend distribution mainly fall into two categories.

**Cash Dividends** (also called payout or dividend distribution) mean the company pays out money directly. Listed companies extract a portion of their net profit as cash and deposit it directly into investors’ accounts. This requires the company to have a healthy financial situation, sufficient cash on hand, and the ability to maintain normal liquidity after the dividend payout.

**Stock Dividends** (also called bonus shares) are when the company issues new shares to shareholders free of charge. Your number of shares increases, and these new shares are directly credited to your holdings account. This method puts less pressure on the company's cash reserves, as long as the distribution conditions are met, and does not require large cash reserves.

In simple terms, cash dividends test the company's cash reserves, while stock dividends test the company's profitability.

### When exactly are dividends paid? How are they distributed?

Most companies pay dividends once a year, while some adopt semi-annual or quarterly payouts. In Taiwan, most are annual dividends, whereas U.S. stocks often pay quarterly. The dividend payout generally occurs within a few months after the financial report is released.

From the announcement to receiving the money, there are several key dates:

**Announcement Date** — The company announces the dividend plan
**Record Date** — The date to determine and confirm which shareholders are eligible for the dividend; holding shares before (or on) this date qualifies
**Ex-Dividend/Ex-Rights Date** — Usually the trading day after the record date; buying shares from this day onward means you do not enjoy this period’s dividend
**Distribution Date** — The official payout of cash or shares

A small detail here: even if you sell your shares on the ex-dividend/ex-rights date, it does not affect your entitlement to receive this period’s dividends.

### How to calculate stock dividends? Let’s take an example

Suppose you hold 1,000 shares of a company, and the company announces a dividend plan.

**If using stock dividends** (at a ratio of 10:1):
Dividend shares = (1000 ÷ 10) × 1 = 100 shares
Your final account holdings = 1000 + 100 = 1100 shares

**If using cash dividends** (5 yuan per share):
Dividend amount = 1000 × 5 = 5,000 yuan
After deducting 5% personal income tax, the actual received amount = 5,000 × 0.95 = 4,750 yuan

**If using a mixed approach** (both stock and cash):
You might receive (1000 ÷ 10) = 100 new shares
Plus 1000 × 3 = 3,000 yuan in cash
Total income = 100 shares + 3,000 yuan

### Newbie must understand: Why does the stock price drop after ex-rights/ex-dividend?

This is a common confusion among new investors.

**Ex-dividend** occurs when cash is paid out. The company's total net assets decrease, and the net asset value per share also drops accordingly, leading to a corresponding adjustment in stock price:
Ex-dividend price = Closing price on record date - cash dividend per share

**Ex-rights** occurs when new shares are issued. The company's total share capital increases, but the total market value remains unchanged, so the value per share decreases, and the stock price drops accordingly:
Ex-rights price = Closing price on record date ÷ (1 + rights issue ratio)

**If both occur** (both cash and stock dividends):
Ex-rights/ex-dividend price = (Closing price on record date - cash dividend per share) ÷ (1 + rights issue ratio)

Example: Company A’s closing price on record date is 66 yuan, with a plan to give 1 share for every 10 shares and a cash dividend of 1 yuan. Rights issue ratio is 0.1, and cash dividend per share is 1 yuan.
Ex-rights/ex-dividend price = (66 - 1) ÷ (1 + 0.1) = 59.09 yuan

The stock price decline is mathematically inevitable, but it does not mean you lost money. Your number of shares or cash has increased; the actual market value has not shrunk, only redistributed.

### To fill or to undercut? How will the stock price move after dividends?

What happens after ex-rights/ex-dividend determines the actual return for investors.

If the stock price rises back to the pre-dividend level after the payout, it’s called "**fill the rights**" or "**fill the dividend**," and the investor’s wealth increases accordingly. Conversely, if the stock price continues to decline, it’s called "**under the rights**" or "**under the dividend**."

Dividend payout itself sends a positive signal, indicating the company’s good operating condition. But whether the stock price can fill the rights depends on market confidence in the company’s prospects and the overall market environment.

### Cash dividends vs stock dividends: How should investors choose?

**Practical significance for investors:**

Cash dividends are straightforward. Once received, you can freely decide how to use the money—invest in other assets or hold cash. Also, paying cash does not dilute your ownership stake, so your proportion of shares remains unchanged. The downside is that you have to pay taxes, with the tax rate depending on your holding period.

Stock dividends are different. In the short term, the number of shares increases but the stock price drops, so your wealth doesn’t increase immediately. But if the company develops well in the long run, the new shares may appreciate along with the stock, bringing returns that could far surpass cash dividends. This approach is suitable for investors optimistic about the company’s future and planning to hold long-term.

**For the company’s perspective:**

Paying cash dividends requires the company to have sufficient earnings and cash reserves. After the payout, the company’s available cash flow decreases, liquidity becomes limited, and it cannot use the funds for new projects or emergency needs. Some cash-strapped companies may overpay dividends and face operational difficulties.

Issuing stock dividends has a much lower threshold; as long as the distribution conditions are met, it has little impact on the company’s cash position.

**Practical conclusion:**

In the short term, most investors prefer cash dividends because they realize gains immediately. But in the long run, if you choose the right company, the compound growth from stock dividends can be even more rewarding.

### How to check a company’s dividend plan?

**Method 1: Visit the company’s official website**
When a listed company announces dividends, it will publish an announcement. Many large companies (like TSMC) compile historical dividend records on their websites for investors to review.

**Method 2: Check through the stock exchange**
In Taiwan, for example, you can check the “Market Announcements” section on the Taiwan Stock Exchange’s official website for ex-rights/ex-dividend notices and calculation results. The calculation results include dividend records from May 2003 onward, providing comprehensive information.

### Dividends are not the only way to generate returns

Besides dividends, companies have other ways to reward shareholders.

**Stock splits**: Dividing 1 share into multiple shares, keeping total market value and shareholder proportion unchanged, but lowering the share price may attract more buyers and indirectly boost the stock price.

**Share repurchases**: The company buys back its own shares for cancellation, reducing total shares outstanding, which increases net asset value per share and signals that the stock may be undervalued, boosting investor confidence.

Regardless of the method chosen, the core logic remains the same—by releasing positive signals, it boosts market expectations of the company, thereby pushing up the stock price. For long-term holders, the appreciation of good companies’ stock prices is often the greatest return.