Dividend investing needs to understand: Will buying and selling around the ex-dividend date really lead to losses?

For many novice investors, high-dividend stocks seem very attractive—stable dividends indicate healthy company finances and ample cash flow. Even Warren Buffett allocates over 50% of his assets to high-dividend stocks. But as soon as they enter the market, they get stuck: Will the stock price definitely fall on the ex-dividend date? When is the best time to buy?

These questions actually reflect a deeper misconception—many believe that stock prices must drop on the ex-dividend date, but the reality is far more complex.

Is a Price Drop on the Ex-Dividend Date Unavoidable?

Let’s look at some numerical logic first.

Suppose a company earns $3 per share annually, with a market valuation at a 10x P/E ratio, so the stock price is $30. The company has accumulated cash over the years and now decides to distribute a special dividend of $4.

In theory, on the ex-dividend date, the company’s value should decrease from $35 to $31. This is because cash flows out, and the company’s assets effectively decrease.

But—this is only a theory.

Historically, Coca-Cola’s stock actually rose slightly on the ex-dividend dates of September 14, 2023, and November 30, 2023. Apple is even more extreme: on the ex-dividend date of November 10, 2023, the stock price rose from $182 to $186, nearly a 2% increase. Industry leaders like Walmart, Pepsi, Johnson & Johnson also often see stock price increases on ex-dividend dates.

Why is this? Because stock prices are influenced by more than just dividends. Market sentiment, company performance, industry trends—all can offset or amplify the downward pressure from the dividend payout.

Specifically, on the technical level, investors tend to hedge around the ex-dividend date:

• Some take profits early (especially tax-sensitive investors)
• But more buy in anticipation of the dividend, pushing the stock price higher

As a result: There are rises and falls; nothing is certain.

How Are Stock Prices Adjusted During Rights Issues?

If a company opts for a rights issue instead of cash dividends, the price adjustment is a bit more complex.

Suppose the stock price is $10, and the rights issue price is $5, with a ratio of 2 old shares to 1 new share. The calculation is:

Post-rights issue stock price = (Original Price - Rights Price) ÷ ((Original Shares + Rights Shares))

Plugging in numbers: (10 - 5) ÷ ((2 + 1)) = $1.67

It looks like the stock price drops significantly, but in reality, your total market value remains unchanged—you’re just holding more shares to compensate.

Is Buying Stocks After the Ex-Dividend Date Worth It?

It depends on three things:

First, is the stock price inflated before the ex-dividend date?

If the price has already surged before the ex-dividend date, many investors will sell early to lock in gains. New buyers entering at this high point face the risk of a further decline. In this case, buying after the ex-dividend date might mean buying at a lower price later.

Second, how does the stock typically perform after the ex-dividend date?

Statistics show that stocks tend to decline more often than rise after the ex-dividend date. For short-term traders, this means higher risk of losses when buying immediately after. However, if the price falls to a technical support level and shows signs of stabilization, it could be a good entry point.

Third, what about the company’s fundamentals? Are you planning to hold long-term?

This is crucial. If the company is a solid industry leader with strong fundamentals, the ex-dividend date is just a natural price adjustment and doesn’t reflect a decline in company value. It could even be an opportunity to buy quality assets at a lower price.

Long-term investors often find that buying after the ex-dividend date is more cost-effective—getting the same assets at a discount.

Fill-Right and Discount-Right

In investment circles, two terms are worth knowing:

Fill-Right (填權息): After the ex-dividend date, the stock price temporarily drops, but as investors remain optimistic about the company’s prospects, the stock gradually recovers to pre-dividend levels. This indicates market confidence in the company’s future.

Discount-Right (貼權息): The stock does not rebound after the dividend, and the price remains below the pre-dividend level. This often signals investor concerns about company performance or market conditions.

Whether a stock can fill the rights (recover) directly reflects investor confidence.

Are There Hidden Costs in Investing Around the Ex-Dividend Date?

Tax implications

If you hold stocks in a taxable account, dividends are taxed. Suppose you buy at $35 before the ex-dividend date, and the stock drops to $31 on the ex-dividend date—you face unrealized capital loss and dividend tax.

But if your account is tax-deferred (like certain retirement accounts), taxes are deferred until withdrawal, so this cost is avoided.

Transaction fees and taxes

For example, in Taiwan stock market:

• Commission = Stock Price × 0.1425% × brokerage discount rate (usually 40-50%)

• Transaction tax:

  • Ordinary stocks: 0.3%
  • ETFs: 0.1%

These costs may seem small but can add up with frequent trading.

The Final Mile of Investment Decision-Making

In summary, the performance of dividend stocks on the ex-dividend date is influenced by multiple factors. Investors should:

1. Observe the stock price trend before the ex-dividend date—if it has already surged, consider waiting until after the dividend payout.

2. Check the company’s history of filling rights—quick recovery indicates market confidence.

3. Assess the company’s fundamentals—solid companies often see the ex-dividend date as a normal adjustment, not a risk.

4. Plan for tax costs—choosing the right account type can save significant taxes.

5. Clarify your investment horizon—short-term trading and long-term holding require different strategies.

Ultimately, rational investment decisions should be based on your risk tolerance and investment goals, not blindly following stock price movements around the ex-dividend date.