Recently, many investors have questions about dividend distribution, especially about the difference between stock dividends and cash dividends. I will organize these concepts to help everyone clarify their thinking.

Let's start with the most basic concept. After a listed company makes a profit, pays off debts, and covers past losses, the remaining profit will be distributed to shareholders, which is called dividend payout. How is it divided? There are two ways: one is to give cash directly (cash dividend), and the other is to give stock (stock dividend).

Giving stock means the company distributes new shares to your account free of charge, increasing the number of shares you hold. Giving cash is more straightforward: the money goes directly into your cash account. The company's choice depends mainly on its cash flow situation. Paying cash requires the company to have sufficient earnings and cash reserves, while issuing stock has a lower threshold, as long as the distribution conditions are met.

Regarding the timing of distribution, most Taiwanese stocks pay dividends annually, while U.S. stocks usually pay quarterly. Distributions generally occur after the financial reports are announced. However, I need to remind everyone that not all companies pay dividends every year. If a company has major projects or needs capital expansion, it may choose not to pay dividends even if it has earnings.

How to calculate stock dividends? For example, suppose you hold 1,000 shares of a company, and the company decides to distribute 0.5 shares for every 10 shares held. You will receive (1000 ÷ 10) × 0.5 = 50 shares. Your account will go from 1,000 shares to 1,050 shares. If it’s a cash dividend, say 5.2 yuan per share, then 1,000 shares amount to 5,200 yuan, and after tax deductions, the actual credited amount will be slightly less. Some companies also distribute a mix of both stock and cash.

Which one is better? That depends on individual preference. Most investors prefer cash dividends because they can freely use the money, and paying cash does not increase share capital or dilute your ownership. However, from a company's perspective, paying cash reduces available cash flow and may limit growth opportunities. In contrast, issuing stock has fewer restrictions.

In the long run, if a company develops steadily, the gains from stock appreciation often far exceed cash dividends. Therefore, stock dividends are more suitable for investors planning to hold long-term.

After dividend distribution, an interesting phenomenon occurs: the stock price drops. Why is that? If cash dividends are paid, the company's net assets decrease, and the net asset value per share also declines, leading to a drop in stock price—this is called "ex-dividend." If stock dividends are issued, the total number of shares increases, but the total market value remains unchanged, so the value per share is diluted, and the stock price drops—this is called "ex-rights."

After ex-rights and ex-dividends, the stock price shows a gap. To see the actual growth, you can perform a re-adjustment. Forward re-adjustment converts past prices to current levels; backward re-adjustment converts current prices to past levels.

When stock dividends are paid, the stock price becomes cheaper. If investors are optimistic about the company's prospects, they may buy at lower prices, pushing the stock price back up. If the stock price returns to the level before the dividend, it’s called "filling the rights" or "filling the dividends." Conversely, if it continues to fall, it’s called "sticking rights" or "sticking dividends." When the rights are filled, investors' wealth increases as the stock price rises.

To check whether a company pays dividends, you can visit the company's official website for announcements or check the stock exchange's website. For example, in Taiwan, the Taiwan Stock Exchange's market announcements include notices and calculations for ex-rights and ex-dividends, where you can find each company's historical dividend records.

The calculation formulas for ex-rights and ex-dividends are actually not complicated. The ex-dividend price for cash dividends = 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 per share, the next day's ex-dividend price would be 56 yuan. The ex-rights price for stock dividends = closing price on the registration date ÷ (1 + allotment ratio). Suppose the closing price is 66 yuan, and 1 share is distributed for every 10 shares, so the allotment ratio is 0.1, and the ex-rights price is 66 ÷ 1.1 = 60 yuan. If both cash and stock dividends are distributed simultaneously, a mixed formula is used.

Finally, I want to say that paying dividends is just one way for a company to reward shareholders; it is not the only way. Some companies do not pay dividends but instead use stock splits or buybacks. Stock splits increase the number of shares per share, so shareholders hold more shares but the share price drops; it does not directly increase wealth but may attract more investors. Stock buybacks involve the company repurchasing its own shares, reducing the circulating shares, increasing net assets per share, and potentially boosting the stock price.

All in all, the core idea is: dividend payout signals a company's steady development, but the real returns depend on whether the company can continue to grow after paying dividends and your own investment strategy. Short-term focuses on dividend income; long-term emphasizes stock appreciation. Combining both can lead to the best returns.