Should you buy stocks before ex-dividend date? Market truths and investment decision guide

If a company can consistently and stably pay dividends, it usually reflects a solid business model and abundant cash flow. Many long-term outstanding listed companies have a tradition of regular dividends, attracting more and more investors to consider high-dividend stocks as core assets. Even “Stock Mogul” Buffett is particularly fond of this, with over 50% of his assets allocated to high-dividend stocks.

However, for novice investors just entering the dividend stock realm, two questions often trouble them: Is it worthwhile to buy stocks before the ex-dividend date? Will stock prices definitely fall on the ex-dividend date?

Don’t Be Fooled by Surface: Price Drops on the Ex-Dividend Date Are Not a Hard Rule

Theoretically, on the ex-dividend date, since the company distributes cash dividends to shareholders, this portion of assets flows out of the company, and the actual value represented by the stock should decrease accordingly. Based on this logic, the stock price should fall.

But in reality, this is not always the case. Historical trends show that price drops on the ex-dividend date are not inevitable, especially for industry leaders with stable performance and excellent dividend records, which often see their stock prices rise against the trend on the ex-dividend date.

Theoretical Basis for Price Drop

To understand this, first grasp how ex-dividend and ex-rights affect stock prices:

In the case of rights issues: When a company issues new shares or distributes additional shares, increasing the total share count, the total value remains unchanged, so each share’s value decreases proportionally, leading to a lower stock price.

In the case of dividends: When a company pays cash dividends to shareholders, it’s equivalent to a direct reduction of the company’s assets, so while shareholders receive cash income, the stock price also tends to decrease accordingly.

For example, suppose a company earns $3 per share annually, with a market valuation multiple of 10x, making the stock price $30. The company has accumulated $5 per share in cash reserves, raising the total valuation to $35.

If the company decides to pay a special dividend of $4 per share, leaving only $1 per share for operational funds, theoretically, on the ex-dividend date, the stock price should adjust from $35 down to $31.

Calculations for rights issues are slightly more complex. If a stock’s pre-issue price is 10 yuan, with a rights issue price of 5 yuan, and a 2:1 rights issue (holding 2 shares entitles you to 1 new share), then after the rights issue, the stock price would be approximately:

( (10 yuan - 5 yuan) / 2 + 1 share ≈ 1.67 yuan

) In Reality, Stock Prices Fluctuate

The key point is that stock price movements are driven by multiple factors, not just the ex-dividend or ex-rights event. Market sentiment, company performance, industry outlook, and other factors all play a role.

Take Coca-Cola as an example. The company has a long history of paying dividends, with stable quarterly payments in recent years. Most ex-dividend days see a slight decline in stock price, but on the ex-dividend dates of September 14, 2023, and November 30, 2023, the stock actually rose slightly; whereas on June 13, 2025, and March 14, 2024, the stock declined.

Apple is even more obvious. Also paying quarterly dividends, but due to tech stock enthusiasm, Apple often rises on ex-dividend dates. On November 10, 2023, the ex-dividend date, the stock rose from $182 to $186; and on May 12, 2024, it surged by 6.18%.

Similar patterns are seen in “blue-chip” giants like Walmart, Pepsi, Johnson & Johnson—they often see stock price increases on ex-dividend days.

Conclusion: The movement of stock prices on ex-dividend dates is jointly determined by dividend amounts, market sentiment, company fundamentals, and other factors.

When to Buy Stocks Before the Ex-Dividend Date? How to Choose the Timing?

There is no absolute answer; it requires considering three aspects comprehensively.

( Core Concept: Fill-Price vs. Stick-Price

Before analyzing when to buy, first understand two key concepts:

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

Stick-Price (貼權息): After ex-dividend, the stock price remains sluggish and fails to recover to pre-dividend levels. This usually indicates investor concern about the company’s future performance, possibly due to poor earnings or market changes.

) Three Decision Dimensions

Dimension 1: Stock Price Performance Before the Ex-Dividend Date

If the stock price has already risen to a high level before the ex-dividend date, investors tend to realize gains early, especially those seeking to avoid high taxes. Therefore, buying before the ex-dividend date may mean the stock price already includes over-optimism or faces selling pressure, making entry riskier.

Dimension 2: Historical Trends of Stock Price After Dividends

Looking at historical data, stocks tend to decline rather than rise after the ex-dividend date. This is unfavorable for short-term traders, as buying in may lead to losses.

However, a turning point occurs if: the stock price continues to fall after ex-dividend to a technical support level and begins to stabilize; this can become a good entry point.

Dimension 3: Company Fundamentals and Long-term Holding

For companies with solid fundamentals and industry leadership, ex-dividend behavior is more about price adjustment rather than value loss. Conversely, buying before the ex-dividend date can offer an opportunity to acquire quality assets at a better price. For such companies, buying after ex-dividend and holding long-term is often more profitable because intrinsic value remains unchanged, and the price decline makes the stock more attractive.

Hidden Costs of Ex-Dividend Investing

Tax on Dividends

If purchasing ex-dividend stocks within qualified retirement accounts (like US IRA or 401K), no taxes are payable before withdrawal.

But in taxable personal accounts, the situation differs. Investors might buy at $35 before the ex-dividend date, and when the stock drops to $31 on the ex-dividend date, they face an unrealized capital loss, and must pay taxes on the $4 dividend received.

The only exception is if investors reinvest dividends into stocks and expect the stock price to recover quickly—then buying before the ex-dividend date makes sense.

Transaction Fees and Taxes

Besides dividend taxes, trading costs are also significant.

For example, in Taiwan stock market, the commission fee is calculated as:

Stock Price × 0.1425% × brokerage discount rate (usually 50-60%)

Transaction taxes vary by stock type:

• Common stocks: 0.3%
• ETFs: 0.1%

Transaction tax = Stock Price × applicable tax rate

Though these costs are small per trade, frequent trading can significantly eat into returns.

Investment Framework for Buying Stocks Before the Ex-Dividend Date

Based on the above analysis, investors should consider:

1. Company Quality: Is the company’s fundamentals stable? Is dividend payment consistent?
2. Stock Price Position: Is the stock already high before the ex-dividend date? Is the purchase price reasonable?
3. Tax Planning: What is your personal tax situation? Is it worth bearing the tax for dividends?
4. Investment Horizon: Are you aiming for short-term gains or long-term holding? Different strategies apply.
5. Market Environment: Overall market sentiment and industry outlook.

For long-term investors: If confident in the company’s prospects, the timing of buying before or after the ex-dividend date makes little difference; the key is the company’s quality and whether the purchase price is reasonable.

For short-term traders: Pay close attention to technical signals and market sentiment, avoid buying at high levels, and consider entering only after the price bottoms and stabilizes.

Regardless of when you buy, rational decision-making and risk management are always the core of ex-dividend investment.