Recently, I’ve noticed that many people are asking about the difference between stock dividends and cash dividends, so I thought I’d organize this topic, because many beginner investors really don’t understand it.

Simply put, when a listed company makes a profit, after paying off debt and making up for losses, the remaining profits can be distributed to shareholders. There are two ways to distribute it: one is to give out stock (stock dividends), and the other is to give out cash (cash dividends). With the former, the shares are directly credited to your account and your share count increases; with the latter, it’s genuinely transferring money into your funds account.

Why does a company choose one or the other? Mainly it depends on the company’s cash position. Distributing cash dividends requires the company to have enough cash on its books; if they distribute too much, it can affect the company’s liquidity. But distributing stock dividends is much simpler—if it meets the distribution conditions, it can be done even when cash isn’t sufficient, so the threshold is much lower.

So how do you calculate the stock dividend formula? It’s actually straightforward. Suppose you hold 1,000 shares, and the company decides to distribute 1 share for every 10 shares held. That would be (1000 ÷ 10) × 1 = 100 shares of stock dividends. Your account then becomes 1,100 shares. Cash dividends are even simpler: 1,000 shares × cash dividend per share = the amount of cash you can receive. If the company distributes a mix of both, you just add them together.

The distribution is usually done once a year, though some are paid semi-annually or quarterly. Most Taiwanese stocks distribute dividends annually, while U.S. stocks often do quarterly. In general, dividends are paid after the financial reports are announced, so the timing varies depending on when the company discloses its financials.

There are a few important dates in the distribution process that you should remember: the announcement date is when the company announces the dividend; the record date is the date used to confirm which shareholders are eligible to participate (anyone who bought before this date counts); the ex-dividend/ex-rights date is usually the next trading day after the record date (if you buy on this date, you won’t be entitled to this period’s dividend); and finally, the payment date is when the dividends are actually paid to you.

Many people care about the logic behind the stock dividend calculation formula—it is essentially distributing based on your ownership proportion. But there’s an important concept here called ex-dividend and ex-rights. After cash dividends are paid, the company’s net assets decrease, so the actual value per share drops and the stock price falls—this is called ex-dividend. After stock dividends are distributed, the total number of shares increases, but the company’s total market value remains unchanged, so the value represented per share decreases and the stock price also falls—this is called ex-rights. This is why the stock price often has a “gap” after dividends are distributed.

For investors, most people actually prefer cash dividends because once they receive the money, they can freely choose what to invest in, and their ownership proportion isn’t diluted. But cash dividends are subject to taxes, and the tax rate depends on how long you held the shares. For companies, paying cash dividends requires sufficient earnings; distributing too much can affect the company’s operations and expansion.

Looking at the long term, if a company develops well, the gains brought by stock price appreciation often far exceed cash dividends. So stock dividends may be more favorable for long-term investors because they can create a compounding effect. However, if you need cash flow, cash dividends are more tangible.

After ex-dividend/ex-rights, the stock price becomes cheaper. If investors are optimistic about the company’s prospects, they may buy at the lower price, pushing the stock price upward. If the stock price rises back to the level before ex-dividend/ex-rights, it’s called “filling the gap” (filling the dividend). Conversely, if it continues to fall, it’s called “staying below” (sticking to the gap / failing to fill). Whether it fills depends mainly on the company’s fundamentals and market sentiment.

Checking a company’s dividend information is easy. You can directly go to the company’s official website to view announcements, or look in the Taiwan Stock Exchange’s market announcements for the forecast tables and calculation result tables, which include detailed dividend records for each company. For Taiwanese listed companies, you can access all dividend information since Minguo 92.

To be honest, dividends are a good thing for shareholders, but they are not the only way to generate returns. Some companies return value to shareholders by using stock splits or share buybacks. A stock split means dividing one share into multiple shares: the number of shares increases, the price per share drops, and total market value stays unchanged. A share buyback is when the company purchases its own stock, reducing the total shares outstanding and increasing per-share net assets and the stock price. These are all ways a company sends positive signals to the market.

In summary, whether you choose cash dividends or stock dividends depends on your own investment style. If you need cash flow in the short term, choose cash dividends; if you look favorably on the company’s development in the long term, stock dividends may be the better choice. Most importantly, choose the right company—whether it pays dividends or not is secondary.