Stock dividends and cash dividends explained: Is issuing additional shares good or bad? How should investors choose?

Two Methods of Dividend Distribution

After investors purchase shares of a listed company and become shareholders, when the company operates profitably, repays debts, and covers losses, it will distribute part of the profits to shareholders. This is called dividend payout (dividends). There are two completely different options for dividend distribution.

One is stock dividends, where the listed company distributes newly issued shares to shareholders free of charge, directly increasing the number of shares held by investors, also known as stock dividends or bonus shares. The other is cash dividends, where the company transfers cash directly into investors’ accounts, also called cash dividends or dividend payout.

The choice of method depends on the company’s actual financial situation. Paying cash dividends requires the company to be sufficiently profitable and have ample cash flow, and the dividend payout should not affect normal operations. Stock dividends have a lower threshold; even if cash is tight, they can be implemented, but they will dilute the existing shareholders’ equity proportion.

Complete Process and Timeline of Dividend Distribution

Distribution cycle and disclosure time

Most listed companies adopt annual dividends, with some paying quarterly or semi-annual dividends. The dividend plan must be approved by the shareholders’ meeting and disclosed in the financial report. The specific payout time depends on the company’s financial report release date—earlier financial disclosures mean investors receive dividends sooner.

Not all profitable companies pay dividends every year. If a company needs to invest large amounts for business expansion or project operations, it may postpone dividends even if there are earnings.

Key Dates for Dividend Distribution

Announcement Date: The company publicly announces the dividend plan.

Record Date: The date to determine the list of shareholders eligible for dividends; only those holding shares before this date can enjoy the dividends.

Ex-dividend and Ex-rights Date: Usually the trading day after the record date; stocks bought on or after this date do not enjoy the current period’s dividends.

Distribution Date: The official transfer of dividends into investors’ accounts.

Note that trading can still occur on the ex-dividend/ex-rights date; selling shares on this day does not affect dividend entitlement.

Precise Calculation of Stock Dividends

Example of pure stock distribution

Suppose an investor holds 1,000 shares of a company, which announces a 10:1 stock split (1 share bonus for every 10 shares):

Stock dividends owed = (1000 ÷ 10) × 1 = 100 shares

After the dividend, the investor’s holdings increase to 1,100 shares. It seems wealth has increased, but the company’s total share capital also expands accordingly.

Cash dividend calculation

If the same company pays cash dividends, say 3 yuan per share:

Cash dividends owed = 1000 × 3 = 3,000 yuan

After deducting taxes (tax rate depends on holding period), the actual credited amount will be less.

Mixed distribution mode

In practice, many companies adopt a mixed approach: 1 stock for every 10 shares plus 2 yuan cash per share.

Final total = 100 shares + 2,000 yuan cash

Is Stock Split Good or Bad: Investors’ Perspective

This is a common dilemma for many investors. The answer is not absolute; it depends on individual investment goals.

Advantages and disadvantages of cash dividends

Advantages: Investors receive real cash, which they can freely reinvest; they are not passively diluted. Cash on hand allows flexible fund arrangements.

Disadvantages: Must pay income tax, with rates linked to holding period. After dividend payout, the company’s cash flow decreases, which can somewhat limit growth potential.

Advantages and disadvantages of stock dividends

Advantages: No consumption of company cash, does not affect liquidity. For companies with tight funds but strong growth potential, retaining cash for expansion is more beneficial. In the long run, if the company’s stock price continues to rise, the gains from stock appreciation far exceed cash dividends.

Disadvantages: Increases new shares, diluting earnings per share, and reducing existing shareholders’ ownership proportion. If the company’s performance later declines, the increased shares may depreciate in value.

Long-term investment logic

For growth-oriented companies, whether stock split is good or bad depends on whether it can bring growth momentum to the company. If the dividend funds can be converted into improved performance and drive stock price increases, then the benefits of stock split will far surpass cash dividends. Conversely, if the company falls into decline, stock split may only worsen losses.

Impact Mechanism of Ex-dividend and Ex-rights on Stock Price

Definitions of ex-dividend and ex-rights

Ex-dividend: After the company distributes cash dividends, the company’s net assets decrease, and the asset value per share declines accordingly, leading to an automatic decrease in stock price.

Ex-rights: After the company distributes stock, the total share capital increases but the total market value remains unchanged. The value represented by each share is diluted, causing the stock price to automatically fall.

Quick calculation formulas

Ex-dividend price = Closing price on record date - Cash dividend per share

Example: If the closing price is 66 yuan and the dividend is 10 yuan per share, the next day’s ex-dividend price = 66 - 10 = 56 yuan.

Ex-rights price = Closing price on record date ÷ (1 + stock split ratio)

Example: For a 10-for-1 split, stock split ratio = 0.1, next day’s ex-rights price = 66 ÷ 1.1 = 60 yuan.

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

Practical significance of fill-right and peel-right

After ex-rights and ex-dividend, stock prices will experience technical declines. The subsequent trend depends on market expectations:

• If the stock price recovers to pre-ex-rights and ex-dividend levels, it is called “fill-right” or “fill-dividend”, meaning investors’ wealth increases as the stock price rebounds.

• If the stock price continues to decline, it is called “peel-right” or “peel-dividend”, indicating investors face actual losses.

Fill-right market indicates market optimism about the company’s prospects, believing that the low price after dividend payout is a buying opportunity.

Practical Channels to Check Dividend Information

Official channels

Investors can directly visit the listed company’s official website to check dividend announcements. Some companies maintain historical dividend records for reference.

Stock exchange inquiries

Taking Taiwan market as an example, the Taiwan Stock Exchange official website’s market announcement section provides:

• Ex-rights and ex-dividend forecast table: Pre-announces each company’s dividend plan.

• Calculation result table: Records detailed dividend data for each company since 2003.

Investors can verify key data such as dividend timing, stock split ratio, and dividend amount through these official tables.

Summary: Stock split or dividend, depends on growth potential

Dividends are a way for companies to reward shareholders but not the only way. Companies that do not pay dividends can also increase shareholder value through stock splits (lowering share price to attract investors) or share buybacks (reducing total shares outstanding, increasing EPS).

The standard for judging whether stock split is good or bad depends on whether the company is in an uptrend, whether dividend funds are used effectively, and whether the stock price has the potential to fill rights. Growth companies often prefer stock splits over cash dividends because retaining cash for expansion can drive larger stock price increases. Mature companies tend to pay stable cash dividends for consistent returns.

Ideally, investors should choose listed companies that can both pay dividends to reward shareholders and maintain sufficient cash for business development, achieving both short-term gains and long-term growth.