The most frequently asked question lately is: Will stock prices definitely fall on the ex-dividend date? I’ve noticed many novice investors are particularly confused about this, so today I want to discuss this topic based on market phenomena I’ve observed.

First, the conclusion: it seems common sense that stock prices drop on the ex-dividend date, but in reality, it’s far from certain. I’ve seen too many cases where prices actually rise on the ex-dividend date.

Theoretically, stock prices should decline on the ex-dividend date, and the reason is simple— the company distributes cash to shareholders, which reduces the company’s assets, so the stock price should adjust downward. For example, suppose a company’s stock is priced at $35, including $5 of idle cash per share. If the company decides to pay a special dividend of $4 per share, then the theoretical stock price on the ex-dividend date would drop from $35 to $31. That sounds logical, right?

But the actual situation is much more complicated. I’ve observed that leading stocks like Coca-Cola and Apple often see rises on their ex-dividend dates. For instance, Apple’s stock on November 10, 2023, rose from $182 to $186 on its ex-dividend date, a significant increase. What does this tell us? It indicates that stock price movements are influenced by more than just the dividend—market sentiment, company performance, and investor expectations all play roles.

So here’s the key question: do you get dividends when you sell on the ex-dividend date? Or, in other words, is buying and selling stocks around the ex-dividend date worthwhile?

It depends on your investment goals. If you’re a short-term trader, the price fluctuations around the ex-dividend date can create opportunities, but the risks are also high. Historically, stock prices tend to decline after the dividend is paid, which is unfavorable for short-term buyers. Unless the price drops to a technical support level and stabilizes, buying at that point carries higher risk.

But if you’re looking at long-term holding of quality companies, the situation is completely different. I believe that for fundamentally solid leading companies, the dividend is just part of the price adjustment, not a reduction in value. At this point, it can actually be an opportunity to acquire high-quality assets at a better price. Buying after the ex-dividend date and holding long-term is often more cost-effective because the intrinsic value of the company hasn’t decreased due to the dividend payout.

Here, I also want to mention the concepts of “fill-the-rights” (填權息) and “stick-the-rights” (貼權息). Fill-the-rights means that after the dividend, the stock price gradually recovers to pre-dividend levels, indicating investor optimism about the company’s future. Stick-the-rights, on the other hand, refers to continued low prices, often reflecting investor concerns about the company’s performance.

Of course, there are hidden costs associated with dividends. If you buy stocks in a regular taxable account before the ex-dividend date and the stock price drops afterward, you face unrealized capital losses and also need to pay taxes on the dividends received. In Taiwan’s stock market, transaction fees are 0.1425% of the stock price (with a discount), and trading taxes are 0.3% for regular stocks and 0.1% for ETFs—these are real costs.

Regarding short-term trading, some investors consider using Contracts for Difference (CFDs) to capture the price swings around the ex-dividend date. This method allows controlling larger positions with less margin. If your judgment is correct, short-term gains can far exceed simply holding the stock and collecting dividends. Plus, not actually holding the stock means you don’t have to pay dividend tax. But I must remind you, leverage is a double-edged sword—be sure to manage it according to your risk tolerance and avoid over-leveraging.

In summary, whether stock prices rise or fall on the ex-dividend date depends on multiple factors working together. Investors should make decisions based on their investment goals, risk tolerance, and their assessment of the company’s fundamentals. Don’t be fooled by the simple notion that “stock prices must fall on the ex-dividend date”—the market is always more complex than the theory suggests.