Recently, I’ve found that many people misunderstand the changes in the stock price after the ex-dividend date. They think the stock price will definitely fall on the ex-dividend day. In reality, this is far more complicated than it sounds.

First, the takeaway: although stock prices often decline on the ex-dividend date, it is by no means guaranteed. I’ve seen quite a few high-quality companies whose stock prices actually rose on the ex-dividend day. For example, blue-chip leaders like Apple and Coca-Cola often behave this way. The key is that how the stock price performs after the ex-dividend date depends on multiple factors working together—not just the act of paying dividends itself.

How is it calculated in theory? Let’s assume a company earns $3 per share, and the market values it at a 10x price-to-earnings (P/E) multiple—then the stock price would be $30. If the company has accumulated some cash—say $5 per share—then the company’s total valuation would be $35. If the company decides to distribute a cash dividend of $4 per share, then theoretically the stock price on the ex-dividend date should drop from $35 to $31. This is the basic logic behind the ex-dividend price adjustment.

But in practice, stock prices after the ex-dividend date often don’t follow a simple script. I’ve observed that Coca-Cola saw slight stock price increases on its ex-dividend dates in September and November 2023. Apple was even more striking: on November 10, 2023, the ex-dividend day, the stock price rose from $182 to $186. And on May 12 this year, it even rose by 6.18%. Old-school blue chips such as Walmart, Pepsi, and Johnson & Johnson also often show stock price gains on the ex-dividend day. So, it’s really hard to predict stock price movement after the ex-dividend date.

So is it worth buying stocks after the ex-dividend date? That depends on a few angles. First, look at how the stock performed before the ex-dividend date. If the stock price has already risen to a high level, many investors may take profits in advance, and entering at that point could mean facing selling pressure. Second, look at historical trends: statistically, stocks are more inclined to fall than rise after the ex-dividend date, which is not very friendly for short-term traders. However, if the stock price drops to a technical support level and then stabilizes, that could be a good buying opportunity.

Most importantly, it comes down to the company’s fundamentals. For businesses with solid fundamentals and industry leadership, dividends are more about adjusting the stock price than about destroying value. In this situation, any pullback in the stock price after the ex-dividend date can actually be a good opportunity to add to positions in high-quality assets. Long-term holding of companies like this is often more worthwhile, because intrinsic value doesn’t change—only the stock price temporarily adjusts.

You also need to consider implicit costs. If you buy stocks through a normal taxable account, you not only have to deal with the potential stock-price losses after dividends, but also pay tax on the dividends you receive. In Taiwan’s stock market, there are also transaction fees (stock price multiplied by 0.1425%, then multiplied by the discount rate) and transaction taxes (0.3% for ordinary stocks, 0.1% for ETFs). These costs can add up and shouldn’t be underestimated.

There’s also an interesting alternative: consider trading difference contracts. If you want to profit from short-term price fluctuations around the ex-dividend date, you can use a lower margin to control a larger position—as long as your prediction is correct, the returns could far exceed those from holding long-term. In addition, because you’re not actually holding the stock, you don’t have to pay dividend taxes, and the operation is more flexible: you can take positions on both rising and falling prices. However, the risks of this kind of trading are relatively higher, so you should allocate positions reasonably based on your own risk tolerance.

All in all, the price trend after the ex-dividend date is influenced by multiple factors, including the dividend amount, market sentiment, and company performance. Investors should consider all these factors and make decisions based on their investment goals and risk tolerance. Don’t blindly follow the crowd, and don’t be frightened by stock price drops after the ex-dividend date—sometimes, it can actually be a very good entry opportunity.