Will the stock price definitely fall after the dividend payout? Understanding these perspectives will help you make smart decisions.

Why Do High-Dividend Stocks Attract Investors?

When a listed company can consistently pay dividends year after year, it usually reflects a sound business model and abundant cash flow. Over half of Warren Buffett’s investment portfolio is allocated to such stocks, and in recent years, more retail investors are beginning to focus on high-dividend stocks as core assets.

However, novice investors often have two questions when facing dividend-paying stocks: Will the stock price definitely drop on the ex-dividend date? Should I buy before or after the ex-dividend date?

How Does the Ex-Dividend Date Affect Stock Prices?

In theory, stock prices should indeed decline on the ex-dividend date. This is because the company distributes cash to shareholders, which effectively reduces the company’s assets, and the stock price should adjust accordingly.

Let’s look at a real example: Suppose a company earns $3 per share annually, and the market values it at a P/E ratio of 10, making the stock price $30. The company has $5 of idle cash per share, bringing the total valuation to $35.

The company decides to distribute a special dividend of $4 per share, while retaining $1 per share as reserve. According to the dividend ex-date theory, the stock price should drop from $35 to $31 ($35 minus $4 dividend).

Similarly, if a company conducts a rights issue, the calculation formula is: Post-rights issue stock price = (Pre-rights stock price - Rights issue price) / (1 + Rights issue ratio)

But Reality Often Breaks Theoretical Expectations

The key point is: The stock price decline on the ex-dividend date is not absolutely certain.

Looking at historical trends, on the ex-dividend date, stock prices can both fall and rise. The reason is simple—price movements are influenced by multiple factors beyond dividends, including market sentiment, company performance, industry outlook, and more.

For example, Coca-Cola, which pays quarterly dividends, often sees a slight dip on the ex-dividend date, but in September and November 2023, the stock price actually rose slightly on those days.

Apple’s performance is even more notable. Driven by the upward momentum of tech stocks, Apple often shows significant increases on ex-dividend days. On November 10, 2023, the stock jumped from $182 to $186 on the ex-dividend date.

Industry leaders like Walmart, Pepsi, and Johnson & Johnson also frequently see rises on ex-dividend days, demonstrating that dividend amount, market sentiment, and company fundamentals all influence stock price performance on these dates.

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

To decide whether to buy after the ex-dividend date, consider these three aspects:

The concept of “Fill Rights and Dividends” vs. “Stick to Rights and Dividends”

If the stock price gradually recovers to its original level after the ex-dividend date, it’s called “Fill Rights and Dividends”—indicating investors are optimistic about the company’s future prospects. Conversely, if the stock remains depressed and fails to recover, it’s called “Stick to Rights and Dividends”—usually reflecting investor concerns about earnings or market outlook.

(1) The stock price before the ex-dividend date is crucial

If the stock price has already risen significantly before the ex-dividend date, many investors may take profits early, especially those seeking tax advantages. Entering at this point might face over-optimism or selling pressure, making it not the best timing.

(2) Historical data tends to show short-term bearishness

Statistically, stocks tend to continue declining in the short term after the ex-dividend date rather than rebound, which is unfavorable for short-term traders. However, if the stock price falls to a technical support level and stabilizes, it could present a good buying opportunity.

(3) The company’s fundamentals determine the long-term logic

For companies with solid fundamentals and industry leadership, the ex-dividend adjustment is just a short-term price correction and does not destroy value. This can instead offer a relatively attractive entry point to increase holdings in quality assets. Holding such stocks long-term is often more profitable.

The Hidden Costs of Participating in Dividends Cannot Be Ignored

Tax Burden

In qualified accounts (like US IRA, 401K), dividends are tax-deferred until withdrawal. But in regular taxable accounts, dividends are taxed. For example, if you buy at $35 before the ex-dividend date and the stock drops to $31 on the ex-dividend date, you face both an unrealized loss and a $4 dividend taxable event.

Transaction Costs

In Taiwan’s stock market, the trading fee is approximately stock price × 0.1425% × discount rate (usually 50-60%). When selling, you also pay a transaction tax: 0.3% for regular stocks and 0.1% for ETFs. These seemingly small costs can gradually eat into returns when trading frequently.

Rational Decision-Making Advice

The performance of dividend stocks on the ex-dividend date is influenced by multiple factors. Investors should evaluate: whether the company’s fundamentals are stable, whether they plan to hold long-term, whether tax costs are acceptable, and how short-term market sentiment is.

Rather than trying to precisely time the market, it’s better to make rational choices based on company quality and personal investment horizon. For high-quality companies, the short-term volatility around the ex-dividend date often presents opportunities for long-term investors to build positions or add to holdings.