Recently, I’ve been looking into stock investment issues and found that many people are still a bit unclear about what dividends are and how to calculate them. So I’ll organize my understanding here.

Simply put, dividends are the way a listed company distributes its profits to shareholders. After a company earns profit, deducting debts and losses, the remaining profit can be distributed to investors, which is called paying dividends. The amount shareholders receive is usually calculated based on their shareholding proportion.

There are two ways to distribute dividends: one is to send you additional shares directly, increasing the number of stocks you hold, called stock dividends or bonus shares. The other is to pay cash, which goes directly into your account, called cash dividends or payouts. How does the company choose? It mainly depends on its situation. Paying cash dividends requires the company to have sufficient earnings and cash, and after paying, it still needs to ensure normal operations. Distributing stock dividends has a lower threshold; as long as the distribution conditions are met, there’s no need to worry about cash sufficiency.

Let’s look at the timeline for what dividends are and how they are issued. In Taiwan, most stocks distribute dividends once a year, while in the U.S., dividends are usually paid quarterly. The company decides on the dividend plan, which must be approved at the shareholders’ meeting and then disclosed in the financial report. Usually, after the financial report is announced, shareholders can receive dividends after a few months. But note that not all companies can pay stable dividends every year; some have major projects or expansion needs, so even if they are profitable, they might not pay dividends.

The process of dividend distribution involves: the announcement date when the company declares the news, the record date to confirm the list of shareholders eligible for dividends—anyone holding shares before this date can participate. The ex-dividend and ex-rights date is usually the trading day after the record date; buying shares on this day means you won’t receive this period’s dividends. The final payout date is when the money or shares are officially distributed.

How do you calculate? For example, suppose you hold 1,000 shares, and the company decides to give 1 share for every 10 shares held. That’s (1000 ÷ 10) × 0.5 = 50 shares of stock dividends, so your account becomes 1,050 shares. If they pay cash, for example, 5.2 yuan per share, then it’s 1,000 × 5.2 = 5,200 yuan, minus taxes, you might actually receive around 4,940 yuan. Some companies also pay a combination of both—stock and cash dividends.

Which is better, stock dividends or cash dividends? It depends. Most investors prefer cash dividends because they can decide how to invest the money and because issuing new shares can dilute their ownership. But cash dividends are taxed, and the tax rate depends on how long you’ve held the shares.

From a company’s perspective, paying cash dividends reduces actual cash flow, affecting liquidity and limiting new project development. Companies with tight cash flow that pay excessive dividends might face difficulties in operations. But in the long run, if the company develops well, the gains from stock price appreciation often outweigh the benefits of cash dividends, making stock dividends more suitable for long-term investors.

Regarding ex-dividend and ex-rights, this is what happens after dividends are paid. After paying cash, the company’s net assets decrease, and the asset value per share drops, causing the stock price to fall—this is called ex-dividend. After paying stock dividends, the total number of shares increases but the total market value remains unchanged; the value per share decreases, and the stock price drops—this is called ex-rights. After ex-dividend and ex-rights, the stock price will have a gap. To better see the trend, charts can be adjusted using pre- or post-adjusted prices.

Dividends themselves do not directly increase investors’ wealth, but they signal good company development, boosting investor confidence. After ex-dividend and ex-rights, stocks become cheaper, and optimistic investors will buy in, pushing the stock price higher. If the stock price rises back to the level before the ex-dividend/ex-rights, it’s called a “fill” or “fill the gap.” Conversely, if it continues to fall, it’s called a “stick” or “stick the gap.” When a fill occurs, investors’ wealth increases as the stock price rises.

How to check what dividends are and whether the company pays them? You can check the announcements on the company’s official website, where many companies also organize historical dividend records. In Taiwan, listed companies’ dividend information can be found on the Taiwan Stock Exchange’s official website, including ex-dividend and ex-rights notices and calculation results, covering data since 2003.