To achieve steady returns in the stock market, dividends are essential knowledge in addition to capital gains! Many investors are often confused about “What are dividends?”, “What is the difference between stock dividends and cash dividends?”, and “What does ex-dividend/ex-rights mean?” Don’t worry, this article provides a comprehensive dividend guide, explaining dividend definitions, the calculation methods for both types of dividends, and the ex-dividend/ex-rights process, helping you master the key to collecting dividends and steadily accumulate wealth.
For stock investors, dividends are an important source of returns in addition to profits from buying and selling stocks. They represent the portion of company earnings distributed to shareholders and constitute rightful returns for shareholders. Understanding the basic concept of dividends is an important step when entering the stock market.
Simply put, the “definition of dividends” refers to the portion of profits a company distributes to shareholders after closing its accounting year, in accordance with the company’s bylaws. This not only affirms shareholders’ investments but also allows the company to share its operational results with shareholders. These earnings can be distributed in cash or in the form of additional shares.
Companies are not required to pay dividends; the decision is based on multiple considerations. From an operational perspective, the main reasons for distributing dividends include:
In the Taiwan stock market, dividends are mainly divided into two types: cash dividends (also called “dividend payments”) and stock dividends (also called “share dividends”). Although both represent shareholder returns, they differ significantly in form, calculation method, and impact on an investment portfolio.
Cash dividends are profits distributed by a company to shareholders in the form of cash. For investors, this provides immediately available funds, which can be reinvested in other assets or used for living expenses. The calculation is usually expressed as “how much cash is distributed per share”. For example, if a company announces a cash dividend of 2 TWD per share, each share you hold entitles you to 2 TWD in cash.
Calculation Formula: Total Cash Dividend = Cash Dividend per Share × Number of Shares Held
Stock dividends involve the company converting earnings into additional shares and distributing them to shareholders. This increases your number of shares, but the value per share decreases due to the larger total share count (after ex-rights adjustment). For investors optimistic about the company’s future, stock dividends allow them to increase their holdings at zero cost, and if the stock price rises, the potential for profit grows. The calculation is usually expressed as “how many shares are distributed per 1,000 shares” or “stock dividend per share”.
Calculation Formula: Total Stock Dividend Shares = (Stock Dividend per Share ÷ Par Value per Share) × Number of Shares Held
(In Taiwan, the par value is typically 10 TWD per share, so it can be simplified as: number of shares distributed per lot. For example, a 1 TWD stock dividend means 100 shares are distributed per 1,000 shares held.)
To help you clearly understand the differences between these two types of dividends, we have organized a comparison table:
| Item |
Cash Dividends (Dividend Payments) |
Stock Dividends (Share Dividends) |
| Form | Cash |
Stock |
| Effect on Number of Shares Held | Unchanged | Increases |
| Effect on Share Price per Share | After the ex-dividend date, the stock price is reduced by the dividend amount | After the ex-rights date, the stock price decreases proportionally |
| Advantages | High liquidity; can be freely used or reinvested | Increases the number of shares held, with greater potential for future capital gains if the stock price rises |
| Disadvantages | Stock price declines after the ex-dividend date; must recover to realize actual gains |
Stock price declines after the ex-rights date; it takes time to recover, and the increased shares may dilute earnings per share due to expanded share capital |
When a company decides to distribute dividends, understanding the concept of “ex-dividend and ex-rights” is essential for all investors. It not only determines whether you are entitled to receive dividends, but also affects the stock price on the ex-dividend/ex-rights date.
“Ex-dividend and ex-rights” refers to the combined process of “ex-dividend” and “ex-rights”. This is a stock price adjustment process designed to deduct the distributed dividends from the stock price, ensuring that investors who purchase the stock after the specified date do not receive the current dividend. Only shareholders holding the stock before the ex-dividend/ex-rights date are entitled to the dividend.
On the ex-dividend/ex-rights date, the stock price is adjusted to a “reference price” to reflect the dividend distribution. This does not mean your assets instantly decrease, because although the stock price drops, you receive an equivalent value in dividends (cash or stock).
Example Calculation:
Assume a company’s stock price is 100 TWD, and it announces a cash dividend of 2 TWD per share and a stock dividend of 1 TWD per share (i.e., 100 shares per 1,000 shares).
Therefore, the opening reference price on the ex-dividend/ex-rights date is approximately 89.09 TWD. Investors should note that whether the stock price recovers to the pre-ex-dividend/ex-rights level, known as “dividend recovery”, is key to determining whether the dividend distribution actually generated profit.
To successfully receive dividends, you must hold the company’s stock before specific dates. Key dates include:
Receiving dividends is certainly gratifying, but it is important not to overlook related tax regulations. In particular, Taiwan’s Second-Generation National Health Insurance (NHI) supplementary premium is a concern for many long-term dividend investors and shareholders.
According to Taiwan’s NHI regulations, any single dividend payment equal to or exceeding 20,000 TWD is subject to a 2.11% Second-Generation NHI supplementary premium. This means that if the cash dividend or the market value of stock dividends received from a single company exceeds 20,000 TWD, the supplementary premium will be withheld.
However, investors whose total annual dividend income does not reach the basic wage (currently 27,470 TWD) are exempt from paying the supplementary premium. Additionally, dividends from over-the-counter unlisted stocks or dividends not included in personal comprehensive income are not subject to the Second-Generation NHI supplementary premium.
Relevant information can be found on the Ministry of Health and Welfare website: National Health Insurance Administration.
Although dividend income may face taxation, there are several legal strategies to help reduce tax liability:
After understanding the definition of dividends and the meaning of ex-dividend/ex-rights dates, the next step is the actual process. How can you check how much dividend you are entitled to? And how will the dividend be distributed to your account?
To check dividend distribution information for listed companies, you can use the following channels:
In general, companies announce ex-dividend/ex-rights dates and payment dates after the board approves the dividend policy.
Remember, a few days after the dividend payment date, you can check your securities account to confirm the credited amount and ensure your rights. If you have any questions, you can contact your brokerage directly.
A: Yes, this is normal. When a company distributes part of its earnings as dividends to shareholders, the company’s total assets decrease, which is reflected in the stock price as a lower “reference price” after the ex-dividend/ex-rights date. Whether the stock price returns to its pre-ex-dividend/ex-rights level is called “dividend recovery”. If the stock price continues to decline, falling below the post-dividend reference price, it is called a “post-dividend drop”. Dividend recovery means investors not only receive dividends but also benefit from a stock price rebound, achieving dual gains; a post-dividend drop may result in receiving dividends but losing on the stock price difference.
A: Yes, odd-lot shares can receive dividends! Regardless of the number of shares you hold, as long as you own the stock before the last transfer date of the ex-dividend/ex-rights period, the company will distribute dividends proportionally. The collection process is the same as for full shares: cash dividends are transferred to your settlement account, and stock dividends are credited to your central depository account. However, if the cash dividend amount is very small, insufficient to cover transfer fees, some companies may issue the dividend via mailed check.
A: It depends on your investment goals and personal situation. If you seek stable cash flow for daily expenses or reinvestment, cash dividends are preferable. If you are optimistic about the company’s long-term growth and wish to increase shareholdings for potential future capital gains without immediate cash needs, stock dividends may be more suitable. Note that receiving stock dividends can lower your per-share cost but also dilutes earnings per share, so a comprehensive evaluation is necessary.
A: Not necessarily. While high dividend yields can attract investors, they are not the sole criterion for a good stock. Sometimes, a company’s stock price decline causes the dividend yield to rise “passively”, which may indicate operational issues. Additionally, some companies may issue excessively high dividends to attract short-term investors at the expense of long-term growth. When selecting high-dividend-yield stocks, always consider the company’s fundamentals, earnings stability, industry outlook, and sustainability of its dividend policy to avoid the trap of “receiving dividends but losing on price difference”. You can also refer to the article What Is Dividend Yield for deeper insights.
A: Beyond dividends, the primary way to profit from stocks is through “capital gains”, which comes from buying low and selling high to capture price differences. Some investors also profit by “short selling” when stock prices decline (though this carries higher risk) or by participating in corporate capital increases or warrants. For long-term investors, the combined returns from dividends and capital gains provide a more comprehensive measure of investment performance.
Through this detailed guide, you should now have a comprehensive understanding of “What Are Dividends?”, “stock dividends”, “cash dividends”, and the “meaning of ex-dividend/ex-rights dates”. Mastering these fundamental concepts forms the foundation for navigating your investments with confidence. From dividend definitions and the calculation methods for both types of dividends, to the impact of ex-dividend/ex-rights on stock prices and key dates, as well as tax planning and collection procedures, each step is closely linked to your investment returns. Start applying this knowledge now to generate more dividend income for your portfolio and steadily grow your wealth!
