Do high-dividend stocks really drop on ex-dividend date? Understanding the pattern of rights and dividend filling is the key to making money.

If a company can consistently and stably distribute cash dividends to shareholders over the long term, it often indicates that its business model has stood the test of time and its cash flow situation is quite healthy. Many long-performing listed companies have established a tradition of stable dividend payments. Especially in recent years, an increasing number of investors have included high-dividend stocks in their core portfolios. Even investment masters like Warren Buffett are particularly fond of them, allocating over 50% of their assets to such stocks.

However, for novice investors just starting to explore dividend stocks, there is often a dilemma: Will the stock price necessarily drop on the ex-dividend date? Should I add to my position before selling on the ex-dividend date, or wait until after the dividend payout to enter? This question seems simple but actually involves multiple investment considerations.

Is a stock price drop on the ex-dividend date truly unavoidable?

Theoretically, on the ex-dividend date, because the company pays cash dividends or issues additional shares, the book value per share decreases accordingly, making a decline in stock price seem logically inevitable. However, looking at historical data, we find that a drop in stock price on the ex-dividend date is not a strict rule. Especially for leading companies with stable dividends, strong performance, and market popularity, the stock price can even rise on the ex-dividend day.

To understand this phenomenon, first, it’s important to grasp how ex-rights and ex-dividends affect stock value:

Ex-rights refers to the increase in share capital due to bonus shares or rights issues. When the overall company value remains unchanged, the value per share decreases, so the stock price needs to adjust downward.

Ex-dividend means the company pays cash dividends to shareholders. This payment results in an actual outflow of assets, so even if shareholders receive cash income, the stock price will typically decrease accordingly.

However, simple theoretical adjustments often differ from real market behavior, which is influenced by many factors. For example, consider a hypothetical company: it earns $3 per share annually, with a P/E ratio of 10, setting its stock price at $30. Years of profits have accumulated cash reserves, raising the per-share value to $5, making the total valuation $35.

Suppose the company decides to distribute a special dividend of $4 per share, scheduled for June 17, 2025, with the record date on June 15. Theoretically, on the ex-dividend date, the stock price should drop from $35 to $31 ($35 - $4).

Similar calculations apply to rights issues. For instance, if a stock trades at $10 before the ex-dividend date, and the rights issue price is $5, with a ratio of 2 shares for 1 new share, the theoretical post-issue price would be: (10 - 5) / (2 + 1) ≈ $1.67.

But the key point is—although a decline on the ex-dividend date is common, it is not guaranteed. Historical market performance shows that prices can go up or down after the ex-rights or ex-dividends, reflecting that stock price movements are affected by multiple factors beyond technical adjustments. Market sentiment, company performance, industry environment, and other variables all influence the stock’s trajectory.

For example, Coca-Cola has a long history of paying dividends and has maintained stable quarterly dividends in recent years. Most ex-dividend days see a slight decline in stock price, but there are exceptions—on September 14 and November 30, 2023, the stock price actually rose slightly. Conversely, on June 13, 2025, and March 14, 2025, the stock declined.

Apple Inc. is another clear example. As a technology giant with quarterly dividends, market enthusiasm for tech stocks has led to significant gains on many ex-dividend days. On November 10, 2023, the stock rose from $182 to $186 on the ex-dividend date. In May 2023, the increase was as high as 6.18%.

Industry leaders like Walmart, PepsiCo, and Johnson & Johnson also often see stock price increases on ex-dividend days. This demonstrates an important phenomenon: the size of the dividend, investor market sentiment, company performance, and other factors are key variables influencing stock price performance on ex-dividend dates.

Should I wait for a pullback after selling on the ex-dividend date before re-entering?

There is no absolute answer; it requires analysis from multiple angles:

(1) Stock performance before the ex-dividend date

If the stock price has already risen to a relatively high level before the ex-dividend date, many investors may choose to realize gains early, especially those seeking to avoid personal income tax. For investors planning to sell on the ex-dividend date and buy back at a lower price, the timing may not be ideal, as the stock price might already reflect excessive optimism or selling pressure. In contrast, selling on the ex-dividend date is often a better timing.

(2) Historical trends after dividends

Historically, stocks tend to continue adjusting downward rather than rebounding quickly after the ex-dividend date. This is unfavorable for short-term traders, as buying afterward may lead to losses. However, if the stock price continues to decline to a technical support level and shows signs of stabilization, it might be worth considering buying.

(3) Company fundamentals and long-term holding strategies

This is the most critical factor. For fundamentally solid companies leading their industries, dividends are more of a technical adjustment rather than a decline in enterprise value. Conversely, a price correction might present a low-cost opportunity to acquire quality assets. For such companies, buying after the ex-dividend date and holding long-term is often more profitable than short-term trading because their intrinsic value remains unchanged.

Fill-rights and discount-rights: key indicators for investment timing

Fill-rights (填權息) refer to stocks that, after the ex-dividend date, initially decline but then gradually recover to or near their pre-dividend levels as investor confidence in the company’s prospects improves. This indicates market optimism about the company’s future.

Discount-rights (貼權息) refer to stocks that, after the ex-dividend date, continue to languish below their pre-dividend levels without recovery. This usually reflects investor concerns about the company’s outlook, possibly due to poor performance or market environment changes.

Using the earlier example of a $35 stock, if the price eventually rises back to $35, it has completed a fill-rights; if not, it’s a discount-rights scenario.

The core logic in deciding whether to buy after the ex-dividend date is: Has the company’s stock price shown strong momentum before the ex-dividend announcement?

Hidden costs to consider when participating in dividend stocks

Tax implications

If purchasing dividend stocks through tax-deferred accounts (e.g., US IRA or 401K), dividends are typically not taxed. However, in taxable accounts, the situation differs. For example, if an investor buys at $35 before the ex-dividend date, and the stock drops to $31 on the ex-dividend date, the investor faces an unrealized capital loss and must pay tax on the $4 dividend received.

Of course, if the investor plans to reinvest dividends and expects the stock price to recover quickly, buying before the ex-dividend date makes sense.

Transaction costs

Besides taxes, trading fees and taxes vary across exchanges. For example, in Taiwan’s stock market:

• Commission fee: stock price × 0.1425% × brokerage discount rate (usually 50-60%)
• Transaction tax (on sale): 0.3% for regular stocks, 0.1% for ETFs

Though these costs seem small, they can gradually eat into returns when trading frequently.

Recommendations for making rational investment decisions

Investors should consider dividend amounts, market sentiment, company performance, and other factors to develop strategies aligned with their investment goals and risk tolerance. The ex-dividend date is not a forbidden zone for stock investment; understanding the underlying market logic is more important than blindly following trends or panicking to sell.