Recently, I’ve noticed that many novice investors have a misconception about high-dividend stocks, thinking that the stock price must drop on the ex-dividend date, but it’s not always that absolute.

Let me first share the phenomenon I’ve observed. Warren Buffett, the stock market legend, has over 50% of his assets allocated to high-dividend stocks, which shows that companies with stable dividends are indeed worth paying attention to. But here’s the problem: many people struggle with whether to buy in on the ex-dividend date, or even believe that selling on the ex-dividend date is the safest choice.

Let me break down the truth about stock prices on the ex-dividend date. Theoretically, on the ex-dividend date, the company distributes cash dividends to shareholders, and the stock’s value decreases accordingly, causing the stock price to adjust downward. For example, suppose a stock is valued at $35, including $5 in cash reserves. If the company decides to pay a special dividend of $4, then the stock price on the ex-dividend date should theoretically drop from $35 to $31. It sounds like the stock price must fall, right?

But here’s a key point: I’ve looked at many historical cases, and the stock price performance on the ex-dividend date is far from that simple. Leading stocks like Coca-Cola and Apple often rise on the ex-dividend date. Industry giants like Walmart, Pepsi, and Johnson & Johnson also frequently see their stock prices strengthen on the ex-dividend date. Why? Because stock price movements are influenced by multiple factors—market sentiment, company performance, overall environment—they are not solely determined by the dividend distribution.

Here, I need to introduce two important concepts: “price recovery after dividend” (填權息) and “price discount after dividend” (貼權息). Price recovery refers to the stock price gradually returning to its previous level after the dividend, indicating investor confidence in the company’s prospects; price discount is the opposite, where the stock remains depressed, often reflecting investor concerns about the company’s future.

So, is it smart to sell on the ex-dividend date? I think it depends on the situation. If the stock price has already risen to a high level before the ex-dividend date, many investors might choose to take profits early, making entry riskier at that point. But if the company has solid fundamentals, is a leader in its industry, and the stock price drops after the ex-dividend date, it could actually be a good opportunity to buy more. Because for such companies, the ex-dividend event is just a price adjustment, and the intrinsic value of the company remains unchanged.

Another factor to consider is tax costs. If you hold stocks in a regular taxable account, buying before the ex-dividend date will face dividend tax issues. For example, in Taiwan’s stock market, trading fees are calculated at 0.1425% of the stock price (usually at 50-60% of the official rate), and when selling, you also pay transaction tax—0.3% for regular stocks and 0.1% for ETFs. These costs can add up and shouldn’t be overlooked.

My advice is, rather than obsessing over short-term fluctuations on the ex-dividend date, it’s better to focus on the company’s fundamentals. For companies with good fundamentals and stable, long-term dividends, the ex-dividend date might actually be an opportunity to buy or increase positions at a more favorable price. Dividends are a steady income source, and combined with potential stock price appreciation, long-term holding is often more profitable. Short-term traders should be cautious, but long-term investors can view the volatility on the ex-dividend date as a chance to position themselves.