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Many stable companies have a tradition of paying dividends regularly, which often reflects a sound business model and abundant cash flow. In recent years, investors have increasingly favored high-dividend stocks, and even Warren Buffett has allocated over 50% of his assets to such stocks.

However, when it comes to ex-dividend dates, many novice investors often face a dilemma: Is it really cheaper to buy the day before the ex-dividend date? Will the stock price definitely fall? The answers to these questions are far more complex than they seem.

The Mathematics Behind Stock Price Adjustments on Ex-Dividend Days

First, understand how dividends affect stock prices. When a company distributes dividends, this cash actually comes from the company’s assets. Theoretically, the dividend amount should correspond to the adjustment in the stock price.

For example: Suppose a company earns $3 per share annually, and with a market valuation (P/E ratio) of 10, the stock price should be $30. The company has accumulated $5 in cash reserves, so the theoretical market value is $35.

If the company decides to distribute a special dividend of $4 per share, leaving $1 as emergency cash, then on the ex-dividend date, the stock price should adjust from $35 to $31 ($35 - $4 = $31). This calculation seems simple, but in reality, market reactions often defy this expectation.

Stock splits are slightly more complex. Suppose a stock is priced at 10 yuan, with a split price of 5 yuan, and a ratio of 2-for-1 (two shares for one new share). After the split, the stock price should be approximately: (10 - 5) ÷ (2 + 1) ≈ 1.67 yuan.

Price Adjustment ≠ Guaranteed Drop

Here’s the key point: Although theoretically, stock prices should adjust downward on the ex-dividend date, in reality, they do not necessarily fall.

Coca-Cola is a typical example. The company has paid stable quarterly dividends for decades, but its stock price on ex-dividend days has not been consistent. On September 14, 2023, and November 30, 2023, Coca-Cola’s stock actually rose slightly on ex-dividend days; whereas on June 13, 2025, and March 14, 2024, it fell slightly. These variations reflect the combined effects of market sentiment, earnings expectations, and other factors.

Apple’s performance is even more evident. Benefiting from the tech stock boom, Apple often shows significant gains on ex-dividend days. On November 10, 2023, the stock rose from $182 to $186; this year’s May 12 ex-dividend day saw a 6.18% increase.

Leading stocks like Walmart, Pepsi, Johnson & Johnson also often see stock price increases on ex-dividend days.

Conclusion: The stock’s performance on ex-dividend days depends on multiple variables, including dividend size, market sentiment, company performance, industry outlook, etc. It is not simply a mechanical decline.

Three Perspectives on Buying the Day Before the Ex-Dividend Date

Perspective 1: Observe the stock price trend before the ex-dividend date

Whether buying the day before the ex-dividend date is worthwhile depends first on whether the stock price has already risen to a high level before the dividend.

Many investors take profits before the ex-dividend date, especially those seeking to avoid personal income tax, choosing to exit early. This means the stock price may have already priced in the dividend expectation and even experienced selling pressure. Entering at this point carries higher risk.

Perspective 2: Review historical stock price movements after dividends

Looking back, stocks tend to show weakness after dividends. For short-term traders seeking quick gains, this indicates a higher probability of incurring losses after buying.

But the key is: When the stock price hits a technical support level and shows signs of stabilization, it is often a better entry point. Blindly rushing to buy the day before the ex-dividend date may lead to chasing the high.

Perspective 3: Assess company fundamentals and holding period

For companies with solid fundamentals and industry-leading positions, dividends are essentially cyclical price adjustments rather than value destruction.

Dividends from such companies are more like opportunities for investors to buy more at a better price. If planning to hold long-term, the post-dividend price correction might be a better entry point, as the intrinsic value of the company remains unchanged.

Rights Issue vs. Bonus Issue: A Critical Decision Point

Understanding these two concepts is crucial for judging the right timing to buy.

Rights Issue: After the dividend, the stock price gradually recovers as investors optimistic about the company’s prospects push the price back to pre-dividend levels. This indicates market confidence in the company’s growth outlook.

Bonus Issue: After the dividend, the stock price remains depressed and does not recover to pre-dividend levels. Usually, this reflects investor concerns about the company’s future, possibly due to poor performance or changing market conditions.

For example, if a stock rises from $31 to $35 after a rights issue, it is a fill; if it stays below $31, it is a discount issue.

This difference directly affects whether buying the day before the ex-dividend date is worthwhile—only high-quality companies capable of filling the discount are worth considering before the dividend.

Hidden Costs: Taxes and Transaction Fees

Investors often overestimate dividend income but underestimate hidden costs.

Tax issues depend on account type. Holding stocks in tax-deferred accounts (like IRA, 401K) means no dividend tax. But in regular taxable accounts, even if the stock price drops, investors still need to pay tax on the received dividends—this results in a double loss.

For example: An investor buys at $35, and on the ex-dividend date, the price drops to $31. The unrealized loss is $4, but they still owe tax on the $4 dividend.

Transaction fees and trading taxes vary by market. In Taiwan’s stock market:

• Brokerage fee = Stock price × 0.1425% × discount rate (usually 50-60%)
• Trading tax: 0.3% for stocks, 0.1% for ETFs

Though seemingly small, these costs can accumulate and erode returns.

How to Capture Opportunities Amid Ex-Dividend Fluctuations

Long-term holders find stable dividend income most attractive. But short-term traders aiming to profit from price swings around dividends need more flexible tools.

Some consider using derivatives (like CFDs) to control large positions with smaller capital, allowing flexible long or short positions based on price movements. These instruments can avoid dividend taxes without holding actual shares, with relatively low trading barriers.

However, derivatives involve leverage risks; use cautiously according to your risk tolerance.

Comprehensive Investment Decision-Making

Whether buying the day before the ex-dividend date is worthwhile depends on multiple factors:

• Has the stock price already risen excessively before the dividend?
• Does the company have a history of filling discounts?
• What are the company’s fundamentals and industry prospects?
• What is your tax situation and intended holding period?
• How do hidden costs affect your actual returns?

High-dividend stocks are fundamentally suitable for long-term investment; short-term price fluctuations are just noise. The real advantage comes from assessing company quality and patience, not trying to precisely time the ex-dividend buy-sell.

Rational investors should ask not “When to buy,” but “Should I buy this company.”