How to Calculate Dividends to Maximize Benefits? A Practical Comparison Guide: Stock Dividends vs Cash Dividends

Question

Investors buy listed company stocks, and when the company profits, it distributes dividends to shareholders as a return. But many investors are puzzled: How to calculate dividends? Is it more profitable to take stocks or cash? This article will delve into the dividend distribution mechanism and teach you how to accurately calculate the difference in returns.

Two Types of Dividends, Very Different Returns

Public companies have two forms of dividends. One is cash dividends, which are directly transferred to investors’ accounts; the other is stock dividends (bonus shares), which increase the number of shares held by investors.

Cash dividends require the company to have sufficient cash on hand. After distribution, it directly reduces the company’s available funds, putting pressure on liquidity. Stock dividends have a lower threshold; as long as the distribution conditions are met, they can be implemented regardless of the company’s cash situation.

However, for investors, the actual return effects of the two methods are completely different.

How to Calculate Dividends: A Complete Guide to Three Payment Methods

Pure Cash Dividends

Calculation formula: Number of shares held × Cash dividend per share = Cash income

Example: Suppose you hold 1,000 shares of Hon Hai, and the company announces a dividend of 5.2 yuan per share

Cash income = 1,000 × 5.2 = 5,200 yuan
After 5% tax deduction, actual received = 5,200 × 0.95 = 4,940 yuan

Cash is received quickly, but taxes must be paid, with the rate depending on the holding period.

Pure Stock Dividends

Calculation formula: (Number of shares ÷ Base ratio) × Dividend ratio = Additional shares

Example: Suppose you hold 1,000 shares of Cathay Financial, and the company distributes 1 share for every 10 shares held

Additional shares = (1000 ÷ 10) × 1 = 100 shares
After dividend distribution, total shares = 1,000 + 100 = 1,100 shares

The key is that although the number of shares increases after the dividend, due to “ex-dividend” adjustments, the value per share will decrease accordingly, and the total equity theoretically remains unchanged.

Mixed Dividends

Some companies distribute both cash and stock dividends simultaneously. For example, Hon Hai might distribute 1 yuan cash per share plus 1 bonus share for every 10 shares.

Cash portion = 1,000 × 1 = 1,000 yuan
Stock portion = (1000 ÷ 10) × 1 = 100 shares
Actual income = 100 new shares + 1,000 yuan cash (after tax)

How Do Ex-Dividend and Ex-Right Prices Affect Your Returns?

After dividend distribution, the stock price will experience a gap, known as “ex-dividend” or “ex-right.” Understanding this mechanism is crucial for assessing true returns.

Ex-dividend Price Calculation (Cash Dividends)

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

Example: Company A’s record date closing price is 66 yuan, and the dividend is 10 yuan per share

Ex-dividend price = 66 - 10 = 56 yuan
The stock price drops by 10 yuan, but you receive 10 yuan cash; the theoretical return remains unchanged

Ex-right Price Calculation (Stock Dividends)

Calculation formula: Ex-right price = Closing price on record date ÷ (1 + Bonus ratio)

Example: Company A’s record date closing price is 66 yuan, and it distributes 1 bonus share for every 10 shares (bonus ratio 0.1)

Ex-right price = 66 ÷ 1.1 = 60 yuan
The stock price drops by 6 yuan, but you hold 1 extra share; the total value remains unchanged

Mixed Dividends Ex-right/Ex-dividend Price

Calculation formula: Ex-right/ex-dividend price = (Closing price on record date - Cash dividend per share) ÷ (1 + Bonus ratio)

Example: Company A distributes 1 bonus share for every 10 shares plus 1 yuan cash dividend, with a record date closing price of 66 yuan

Ex-right/ex-dividend price = (66 - 1) ÷ 1.1 = 59.09 yuan

Before and after the dividend, your total assets should theoretically be equal; differences arise from whether the stock price “fills the gap” later.

Stock Dividends vs Cash Dividends: The Real Comparison for Investors

Advantages of Cash Dividends

Pros:

Immediate returns, high liquidity
No dilution of ownership, shareholding ratio remains the same
Suitable for investors needing cash flow

Cons:

Tax payable, reducing net returns
Missed opportunities for long-term stock price appreciation
Not ideal for investors optimistic about the company’s future growth

Advantages of Stock Dividends

Pros:

Tax deferral or low tax, more retained earnings
Increased shareholding participation in future growth
More significant long-term compound effects

Cons:

Dilution of ownership (short-term), decrease in per-share value
Cash flow pressure, less flexibility
Need to wait for “fill the gap” to realize gains

Data Comparison: Same 1 million investment, different dividend strategies

Suppose an investment of 1 million in a stock with an annual dividend yield of 5%:

Cash Dividend Route:

Receive 50,000 yuan in dividends
After 5% tax, actual net = 47,500 yuan
Free to allocate or withdraw

Stock Dividend Route:

Increase holdings by 5%, total value becomes 1,050,000 yuan
Theoretically no tax loss
If the stock price rises 15%, total assets become 1,207,500 yuan
If the stock price falls 10%, total assets become 945,000 yuan

Long-term, if the company develops well, the compound returns from stock dividends can far surpass cash dividends.

How to Check Dividend Information?

Via Official Channels

Public companies publish dividend announcements on their official websites. Some large companies also compile historical dividend records for investors to review.

Via Stock Exchange

For example, in Taiwan, you can check the ex-dividend and ex-right forecast tables and calculation results on the Taiwan Stock Exchange website. These tables detail each company’s dividend timing, method, ratio, and other key information.

Final Advice

Dividends are a company’s way of returning value to investors, but actual returns also depend on taxes, subsequent stock price movements, and other factors. How to calculate dividends is not just a simple math problem; it should be combined with your investment horizon and risk tolerance.

Long-term investors are more suited to the compound effects of stock dividends, while short-term traders focus more on the liquidity of cash dividends. Regardless of your choice, understanding the dividend mechanism and mastering precise calculations are fundamental to rational investing.

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