Is buying on the ex-dividend date really cost-effective? Is the stock price decline a pattern or just a coincidence?

Why Do High-Dividend Stocks Attract Investors

As long as a company can consistently pay dividends, it usually indicates that its business model has stood the test of time and its cash flow is relatively healthy. This is why many established listed companies consider dividends an important traditional component. In recent years, more and more people have made high-dividend stocks a core part of their portfolios. Even “Stock Mogul” Buffett is deeply fascinated by these stocks; over half of his assets are invested in high-dividend stocks.

However, for beginners, there are often questions about the ex-dividend date: Is it a loss to buy on the ex-dividend date? Will the stock price definitely fall? When is the best time to enter?

Is a Stock Price Drop on the Ex-Dividend Date Inevitable?

Theoretically, on the ex-dividend date, since shareholders have already received the dividend, the corresponding stock value should decrease, and the stock price should adjust downward. But looking at historical trends, you’ll find that stock prices do not always fall on the ex-dividend date. Especially for industry leaders with stable dividends, strong performance, and high investor appeal, stock prices may even rise on the ex-dividend date.

To understand this phenomenon, it’s important to clarify how ex-rights and ex-dividend adjustments affect stock prices:

In the case of stock or rights issues: The company increases its share capital. With total assets unchanged, each share represents a slightly smaller portion of the company’s value, leading to a decrease in stock price.

In the case of cash dividends: The company distributes cash to shareholders, meaning its assets decrease accordingly. Shareholders receive cash, but the stock price also adjusts downward.

Using Examples to Understand Stock Price Adjustment Logic

Suppose a company earns $3 per share annually, and the market values it at a 10x P/E ratio, so the stock price is $30.

This company has been profitable for years and has accumulated significant cash on its balance sheet, worth $5 per share. At this point, the total valuation is $35 per share.

The company decides to pay a special dividend of $4 per share, leaving $1 per share as reserve. It announces the dividend will be paid on June 17, with June 15 as the record date (the date shareholders must hold the stock to receive the dividend).

On the ex-dividend date, theoretically, the company’s value should be the previous day’s closing price minus the dividend to be paid. Following this logic, the stock price should drop from $35 to $31 per share.

The calculation for stock split or rights issue is a bit more complex: Post-issue stock price = (Pre-issue stock price - issue price) / (1 + issue ratio)

For example: If a stock is priced at $10 before rights issue, with a rights price of $5, and a ratio of 2-for-1, then: Post-issue stock price = (10 - 5) / (2 + 1) = 5 / 3 ≈ $1.67

But Stock Price Behavior Is Much More Complex Than Theory

The key point is: although stock prices often decline on the ex-dividend date, it is not always the case. Looking at recent data, stock prices can go up or down after the ex-rights and ex-dividend adjustments. Market sentiment, company performance, and overall environment all influence stock price movements, not just the ex-dividend event itself.

Real-world examples:

Apple Inc. pays dividends quarterly. Over the past year, driven by enthusiasm for tech stocks, Apple’s stock often rose on the ex-dividend date. On November 10, 2023, the ex-dividend date, Apple’s stock rose from $182 to $186. Similarly, on May 12, 2023, the stock increased by 6.18% on the ex-dividend date.

Coca-Cola has a long history of paying dividends quarterly. Usually, the stock dips slightly on the ex-dividend date, but sometimes it rises slightly. On September 14 and November 30, 2023, the stock saw small increases; on June 13, 2025, and March 14, 2023, it experienced slight declines.

Industry leaders like Walmart, PepsiCo, Johnson & Johnson also often see stock price increases on ex-dividend dates.

This shows that dividend amount, market sentiment, and company performance all influence whether the stock price drops on the ex-dividend date.

Is Buying on the Ex-Dividend Date a Good Deal? It Depends on These Three Factors

There is no absolute answer; it depends on specific circumstances. Consider these three factors:

(1) How has the stock performed before the ex-dividend date?

If the stock price has already risen sharply before the ex-dividend date, many investors may choose to lock in profits early, especially those seeking to avoid personal income tax. This can mean the stock price has already priced in high expectations or is under selling pressure.

Therefore, when buying on the ex-dividend date, ask yourself: Is the current stock price already overestimating the dividend benefit? If so, entering now carries higher risk.

(2) The historical trend of stock price movement after the ex-dividend date

Statistically, stocks tend to decline more often than rise after the ex-dividend date. For short-term traders, this is less favorable, as buying may carry a higher risk of loss.

However, if the stock continues to decline after the ex-dividend date until it hits a technical support level and shows signs of stabilization, that could be a good entry point.

Here, two concepts are important:

Fill-the-Right (填權息): After the stock goes ex-dividend, its price temporarily drops, but if investors remain optimistic about the company’s prospects, the stock gradually recovers to or near its pre-dividend level. This indicates market confidence in future growth.

Drop-the-Right (貼權息): After ex-dividend, the stock price remains depressed without recovery, suggesting investors are worried about the company’s outlook, possibly due to poor performance or market changes.

Using the previous example: if the stock price recovers from $31 back to $35 after ex-dividend, it has filled the right; if it stays below $35, it’s a drop-the-right situation.

(3) The company’s fundamentals and your holding plan

For fundamentally strong, industry-leading companies, dividends are more of a price adjustment rather than a reduction in value. They can even present an opportunity to buy quality assets at a more attractive price.

For such stocks, buying after the ex-dividend date and holding long-term is often more profitable, as the intrinsic value remains unchanged, and the price correction makes the stock more appealing.

Hidden Costs to Watch When Investing in High-Dividend Stocks

Tax on dividends

If you invest through tax-advantaged accounts (like US IRA or 401K), you generally don’t worry about taxes until withdrawal.

But in regular taxable accounts, it matters. For example, if you buy a stock at $35 before the ex-dividend date, and the stock drops to $31 on the ex-dividend date, you realize an unrealized capital loss, but you still owe taxes on the $4 dividend received.

If you plan to reinvest dividends to buy more shares and expect the stock price to recover quickly, buying before the ex-dividend date makes sense.

Transaction fees and taxes

In Taiwan stock market, for example:

• Brokerage fee = Stock price × 0.1425% × discount rate (usually 50-60%)
• Selling transaction tax: 0.3% for regular stocks, 0.1% for ETFs, calculated as stock price × tax rate

Though these costs seem small, they can add up over time.

How Should Investors Decide?

Overall, the stock price behavior of dividend-paying stocks on the ex-dividend date is influenced by many factors. Whether buying on the ex-dividend date is worthwhile depends on prior stock performance, historical trends, company fundamentals, and personal holding plans.

It’s not correct to assume the stock will always fall on the ex-dividend date, nor to blindly rush in. Rational strategies include:

• For high-quality companies with strong fundamentals, a price pullback after the ex-dividend date can be a good opportunity to add positions.
• Be cautious if the stock has already risen sharply before the ex-dividend date.
• Consider tax implications and transaction costs; don’t ignore these hidden expenses.
• Tailor your approach based on your risk tolerance and investment horizon.

Only by doing so can you truly profit from high-dividend stocks.