Recently, many people have asked me whether they should buy stocks on the ex-dividend date, especially regarding the timing of selling after the ex-dividend date. Actually, the logic behind this is not as complicated as it seems.

First, the conclusion: stock prices do not necessarily fall on the ex-dividend date. Many people think that stock prices must drop after the ex-dividend date, but based on actual cases, leading stocks like Coca-Cola and Apple sometimes see prices rise on the ex-dividend day. In 2023, Apple’s stock price increased from $182 to $186 on the ex-dividend date of November 10, a significant gain. So, stock price movements are influenced by multiple factors, not just the dividend.

Let me explain the underlying principle. Suppose a company earns $3 per share annually, and the market values it at a 10x P/E ratio, making the stock price $30. If the company has accumulated $5 in cash per share, the total valuation becomes $35. Now, if the company decides to distribute a $4 dividend per share, theoretically, the stock price should drop from $35 to $31 on the ex-dividend date. But in reality, the situation is often more complex because market sentiment, company performance, industry trends, and other factors all affect the stock price.

This brings up two important concepts: price recovery after dividend distribution (fill the rights and dividends) and price discounting (discounted rights and dividends). Fill the rights and dividends refers to the stock price gradually rebounding after the ex-dividend date, sometimes even returning to pre-dividend levels, indicating investor confidence in the company's prospects. Price discounting, on the other hand, means the stock remains depressed, reflecting market concerns about the company's future.

So, is it worthwhile to sell after the ex-dividend date? I think it depends on three perspectives. First, has the stock price already risen significantly before the ex-dividend date? If the price is already high, many investors might take profits early, making buying riskier. Second, look at historical data. Statistically, stocks tend to continue declining after the ex-dividend date, which is not friendly for short-term traders. But if the stock falls to a technical support level, it could be a good entry point. Third, consider the company's fundamentals. For solid companies and industry leaders, the ex-dividend adjustment is just a process of price correction and does not mean the company's value has decreased. In fact, it might provide a cheaper entry point for those wanting to increase their holdings.

My personal advice is: if you are optimistic about a company's long-term prospects, a price pullback after the ex-dividend date can be an opportunity. But if you aim to profit from short-term fluctuations around the ex-dividend date, you need to consider tax costs. In taxable accounts, you face unrealized losses from falling stock prices and taxes on received dividends, which can add up.

Additionally, there are transaction fees and trading taxes. In the Taiwan stock market, the trading fee is 0.1425% of the stock price (after discount), the transaction tax for common stocks is 0.3%, and for ETFs, it’s 0.1%. These costs accumulate and should not be overlooked.

Therefore, I believe that holding high-dividend stocks for long-term income is suitable for stable returns. But if you want to make quick profits from short-term volatility around the ex-dividend date, you must carefully calculate the risks and costs. Most importantly, decisions should be based on your investment goals and risk tolerance—don’t get carried away by short-term fluctuations.