Do you know how to calculate cash dividends? Understand the difference between dividend payout methods and investment returns in one article

Investors become shareholders after purchasing listed company stocks. When a company operates profitably and completes debt repayment and loss coverage, some companies will distribute remaining profits to investors in the form of dividends, which is what we commonly refer to as profit sharing. Dividends are an important way for shareholders to earn returns, and the distribution ratio is usually based on the shareholding proportion or stipulated by the company’s articles of incorporation.

So, what are stock dividends and cash dividends? How is the cash dividend calculation performed? Which one should long-term investors choose? This article will analyze each in detail.

Two Methods of Dividend Distribution: Stock Dividends VS Cash Dividends

Companies mainly distribute dividends through two modes:

Method 1: Distributing Stocks (Stock Dividends) Public companies allocate new shares to shareholders free of charge, directly increasing the number of shares in investors’ accounts. This is called stock dividends or stock splits. This method exerts less pressure on the company’s cash reserves and can be implemented as long as the dividend distribution conditions are met, without needing to consider whether the company’s cash on hand is sufficient.

Method 2: Distributing Cash (Cash Dividends) Companies directly transfer cash to investors’ accounts, known as cash dividends, dividend payouts, or dividend distributions. Distributing cash dividends requires the company to have sufficient earnings and cash reserves, and must not negatively impact the company’s liquidity.

The choice of method depends on the company’s financial situation. Generally, cash dividends require higher thresholds, needing adequate cash flow support; whereas stock dividends are more flexible, as long as the distribution conditions are satisfied.

Practical Guide to Cash Dividend Calculation

Investors need to understand the specific process of calculating cash dividends. The company first determines the total distribution amount, then allocates it based on the shareholders’ proportion of ownership.

Cash Dividend Calculation Formula

Cash dividends received by investors = Number of shares held × Cash dividend per share

Example: Hon Hai announced a dividend of NT$5.2 per share, and an investor holds 1,000 shares.

Calculation: 1,000 × 5.2 = NT$5,200

The actual credited amount must consider taxes

Before cash dividends are credited, income tax is deducted, with the tax rate related to the holding period. Using the above example, if a 5% personal income tax is deducted:

Actual credited amount = NT$5,200 × (1 - 0.05) = NT$4,940

This is very important for investors—tax deductions must be considered when calculating cash dividends, and the final net amount will be lower than the nominal dividend amount.

( Stock Dividend Calculation Formula

Stock dividends received by investors = )Number of shares held ÷ Stock split ratio### × Number of shares allocated per split

Example: Cathay Financial announced a 0.5 share stock dividend for every 10 shares held, and an investor owns 1,000 shares.

Calculation: (1000 ÷ 10) × 0.5 = 50 shares

The investor’s holdings increase from 1,000 to 1,050 shares.

( Mixed Dividend Approach

Some companies distribute dividends using both cash and stock simultaneously.

Example: Hon Hai distributes a stock dividend of 1 share for every 10 shares held plus NT$1 cash per share.

• Stock dividend: )1000 ÷ 10### × 1 = 100 shares
• Cash dividend: 1,000 × NT$1 = NT$1,000
• Final assets: 100 shares + NT$1,000 cash

Dividend Payment Cycle and Distribution Process

( Dividend Frequency

Taiwan stocks mainly pay dividends annually, with most companies distributing once a year. U.S. stocks generally pay quarterly dividends. Dividends are usually paid after the earnings report is released, with the timing varying by company—earlier disclosure of financial reports means investors receive dividends sooner.

) Four Key Dates

1. Declaration Date The company announces the dividend plan, disclosing the amount and details.

2. Record Date The date to determine and confirm the list of shareholders eligible for the dividend. As long as you hold the stock on or before this date, you are entitled to receive the dividend.

3. Ex-dividend Date Usually the trading day after the record date. Buying stocks on this day or later means you do not receive the current period’s dividend.

4. Payment Date The official date when dividends are paid to shareholders.

Note: Selling stocks on or after the ex-dividend date does not affect your dividend entitlement.

Price Adjustment After Ex-dividend and Ex-rights

After dividends are distributed, stock prices adjust accordingly. Investors need to understand the underlying logic.

Ex-dividend Price Calculation

When a company pays cash dividends, its net assets decrease, and the value per share drops accordingly, leading to a lower stock price.

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

Example: Company A’s closing price on the record date is NT$66, and the dividend per share is NT$10.

Next-day ex-dividend price = NT$66 - NT$10 = NT$56

Ex-rights Price Calculation

When a company distributes stock dividends, the total share capital increases but the total market value remains unchanged, so each share’s value decreases.

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

Example: Company A’s closing price on the record date is NT$66, and it distributes 1 share for every 10 shares (split ratio 0.1).

Next-day ex-rights price = NT$66 ÷ (1 + 0.1) = NT$60

Ex-rights and Ex-dividend Price Calculation (Mixed Dividends)

Formula: Ex-rights/ex-dividend price = Closing price on record date - (Cash dividend per share) ÷ (1 + Stock split ratio)

Example: Company A distributes NT$1 cash dividend and 1 share for every 10 shares.

Ex-rights/ex-dividend price = NT$66 - NT$1 ÷ (1 + 0.1) = NT$59.1

Price Movement After Dividends: Fill-Back vs. Discount

The price drop after dividends is a technical adjustment and does not represent a real loss—it’s just the ex-dividend/ex-rights adjustment. The key is the subsequent price trend.

Fill-Back Scenario: The stock price recovers after the ex-dividend/ex-rights date to previous levels or higher, increasing actual returns for investors.

Discount Scenario: The stock price continues to decline below pre-dividend levels, leading to potential losses.

Dividends are a positive signal from the company—indicating good operations and ample cash. This can boost investor confidence, attract buying, and push the stock price higher. If a company maintains stable dividends and the stock price consistently fills back, investors can ultimately benefit significantly.

Cash Dividends VS Stock Dividends: Which Is More Cost-Effective?

For Investors

Most investors prefer cash dividends because:

• High liquidity: Cash credited can be freely invested elsewhere
• No dilution: Cash dividends do not increase the number of shares, maintaining ownership proportion

However, cash dividends are taxable, and the company’s available cash for expansion decreases after payout.

Advantages of stock dividends include:

• Tax-free: No personal income tax on stock dividends
• Compounding effect: More shares mean higher future dividends
• Better long-term returns: If the company grows well, stock price appreciation yields higher gains than the dividend amount

( For Companies

• Cash dividends reduce liquidity and may limit new investments
• Stock dividends retain cash for operations and expansion

) Long-term Investment Perspective

If a company has solid fundamentals and continuous growth, stock dividends are more suitable for long-term investors. Compared to immediate income from cash dividends, stock dividends offer compound growth potential—more shares, larger dividend base, and greater room for stock price appreciation.

However, if investors need cash flow or are uncertain about the company’s prospects, the net benefit after tax of cash dividends provides more certainty.

How to Find Dividend Information

( Method 1: Company Website

Public companies typically publish dividend announcements and historical dividend records on their official websites, allowing investors to check specific amounts, dates, and methods directly.

) Method 2: Stock Exchange

For example, in Taiwan, you can check the Taiwan Stock Exchange website’s market announcements:

• Ex-rights/ex-dividend forecast table
• Calculation result tables (covering all dividend records since 2003)

Official channels provide the most reliable and accurate information.

Final Reminder

Dividends are a common way for companies to reward shareholders, but not the only method. Companies can also return value through stock splits (more shares, lower price, attracting buyers) or share buybacks (repurchasing and canceling shares to increase EPS).

For investors, tax considerations are crucial when calculating net cash dividends—the actual credited amount is the real return. Also, pay attention to the company’s fundamentals—companies with stable dividends tend to perform better, but those with strong growth potential may not pay dividends but still offer substantial returns through stock appreciation. Choosing a flexible investment strategy aligned with your investment style and timeline is the wisest approach.