Dividend Distribution Matters: In-Depth Analysis of Cash, Stock, and Hybrid Plans

Starting with Dividends: Why Do Listed Companies Pay Dividends?

Investors purchase listed company stocks to become shareholders. When a company turns a profit, pays off debts, and recovers previous losses, the remaining profit becomes a key decision point. Listed companies can choose to continue expanding or to return earnings to shareholders, and this return is called dividend distribution.

Dividend distribution follows a basic principle: it is allocated according to the shareholder’s proportion of ownership or as stipulated in the company’s articles of incorporation. In other words, the more shares you hold, the more dividends you receive.

So, the question is: how does a company distribute dividends? Is it direct cash or stock? These two methods have very different impacts on investors.

Cash Dividends vs Stock Dividends: How Should Investors Choose?

Cash Dividends (Dividend Payout)

The company directly distributes cash to shareholders, deposited into the investor’s account. For example, holding 1,000 shares with a dividend of 5.2 yuan per share results in a cash income of 1,000×5.2=5200 yuan.

Advantages of Cash Dividends:

• Immediate income, visible and tangible
• Not diluted by new shares
• Investors have full autonomy to choose subsequent investments

Disadvantages of Cash Dividends:

• Personal income tax applies (tax rate depends on holding period)
• Puts pressure on the company’s cash flow, possibly limiting business expansion
• Excessive dividends in liquidity-tight companies may cause cash flow difficulties

Stock Dividends (Bonus Shares)

The company distributes new shares to shareholders free of charge, which are automatically added to the investor’s existing account. Suppose the company decides to give 1 share for every 10 shares held; if you hold 1,000 shares, you will receive (1000/10)×1=100 new shares, making your total shares 1,100.

Advantages of Stock Dividends:

• Retains company cash, does not affect liquidity
• For long-term investors, gains can be more substantial when stock price rises
• Lower threshold, companies not profitable can also operate this way

Disadvantages of Stock Dividends:

• New shares dilute the value per share, causing an initial drop in stock price
• Total share capital increases, diluting ownership
• Investors bear potential risks associated with the new shares

When and How Are Dividends Paid?

Most listed companies pay dividends via an annual dividend scheme, with some paying semi-annually or quarterly. US stocks typically pay quarterly, while Taiwan stocks mainly pay annually. Dividend plans must be approved by the shareholders’ meeting and disclosed in financial reports.

Complete Dividend Cycle

• Announcement Date: The company announces the dividend plan
• Record Date: Determines shareholders eligible for dividends (must buy before this date)
• Ex-dividend Date: Usually the trading day after the record date; after this date, new buyers are not entitled to this dividend
• Distribution Date: The official date when dividends are paid

Tip: Selling stocks on the ex-dividend date does not affect the right to receive the current period’s dividends.

How Much Is 1 Yuan of Stock Dividend? Full Calculation Method

Pure Stock Dividend Distribution

Suppose an investor holds 1,000 shares of Cathay Financial, and the company announces a 0.5 share bonus for every 10 shares. The calculation is:

(1000÷10)×0.5=50 shares

The investor’s account will increase by 50 new shares, making the total holdings 1050 shares.

Pure Cash Dividend Distribution

Suppose an investor holds 1,000 shares of Hon Hai, and the company announces a dividend of 5.2 yuan per share, then:

1000×5.2=5200 yuan

Considering a 5% personal income tax, the actual received amount is 5200×0.95=4940 yuan.

Mixed Distribution

Some companies adopt a “two-pronged” approach, distributing both stock and cash. For example, Hon Hai announces a 1-for-10 stock split and a dividend of 4 yuan per share:

• Stock part: (1000÷10)=100 shares
• Cash part: 1000×4=4000 yuan
• Final income: 100 new shares + 4000 yuan cash

The Logic Behind Ex-dividend and Ex-rights Calculations

Why does the stock price drop after dividends are distributed? This involves two concepts.

The Nature of Ex-dividend

After cash dividends are paid, the company’s net assets decrease, and the net asset value per share also declines. With no change in total share capital, the stock price must fall.

Calculation formula: Ex-dividend price = Closing price on record date − Cash dividend per share

For example: Company A’s closing price on the record date is 66 yuan, and the dividend per share is 10 yuan; the next day’s ex-dividend price is 66−10=56 yuan.

The Nature of Ex-rights

After issuing new shares, the company’s total share capital increases, but the total market value remains unchanged. The value per share is spread out, causing the stock price to fall accordingly.

Calculation formula: Ex-rights price = Closing price on record date ÷ (1+Rights issue ratio)

For example: Company A’s closing price on the record date is 66 yuan, and it issues 1 new share for every 10 shares (rights issue ratio 0.1); the next day’s ex-rights price is 66÷1.1=60 yuan.

When distributing both, the calculation is:

Ex-rights and ex-dividend price = (Closing price on record date − Cash dividend per share) ÷ (1+Rights issue ratio)

For example: Company A’s closing price on the record date is 66 yuan, with a 1 yuan dividend and a 0.1 share bonus (rights issue ratio 0.1); the next day’s ex-rights and ex-dividend price is (66−1)÷1.1=59.9 yuan.

Will the Stock Price Rebound After Dividends? Rights Filling and Discounting

The price gap after ex-rights and ex-dividends is a “bookkeeping” phenomenon; actual investment returns depend on subsequent market movements.

Rights Filling / Dividend Reinvestment: After dividends are paid, the stock price rises back to pre-dividend levels, increasing investor wealth as the stock price recovers.

Discounting / Underpricing: After dividends, the stock price continues to decline, and investors may face paper losses.

The key is market expectations of the company’s prospects. Dividend payments send positive signals, indicating solid fundamentals, which can attract investors to buy at lower prices, driving a rights-filling rally. Conversely, if fundamentals weaken, a discounting situation may occur.

How to Check Dividend Plans and Historical Records?

Official Channels

• Company Website: Most listed companies disclose past dividend records and dividend plans on their investor relations pages
• Stock Exchange: For Taiwan stocks, you can check the Taiwan Stock Exchange website for ex-rights and ex-dividend notices and calculation tables, with data traceable back to 2003 (Minguo 92)

Tips for Information Access

Regularly review the official announcements of stocks in your portfolio to stay updated on dividend schedules and plan your investments accordingly.

Final Thoughts: Cash or Stock?

For investors: Cash dividends “put money in your pocket,” offering short-term clear gains; stock dividends are suitable for long-term holders, as the appreciation of stock price when the company grows often exceeds cash dividends.

For companies: Cash dividends require sufficient profits and cash reserves, and paying dividends can weaken liquidity; stock dividends retain cash for operations and expansion.

There is no absolute best choice; understanding both mechanisms and aligning them with your investment horizon and company development stage is key. For long-term growth stocks, a single stock dividend can be far more powerful than years of cash dividends.