Recently, I’ve been reading some discussions about high-dividend stocks and found that many novice investors have quite a few misconceptions about the ex-dividend date. Actually, this is a topic worth discussing in detail.

Many people believe that stock prices must fall on the ex-dividend date, but my observation is that this is not necessarily the case. The stock’s performance on the ex-dividend date depends on multiple factors, not just the dividend amount on paper.

Let’s start with the principle. When a company pays out cash to shareholders on the ex-dividend date, this money is essentially deducted from the company’s assets, so theoretically, the stock price should adjust downward. For example, if a stock is priced at $35, which includes $5 in cash reserves, and the company decides to pay a $4 dividend, then after the ex-dividend date, the stock price should theoretically drop from $35 to $31. Mathematically, that makes sense.

But the key point is, the market doesn’t only look at that. I’ve noticed that established dividend-paying companies like Coca-Cola often see their stock prices slightly rise on many ex-dividend dates. Apple is even more extreme; due to the popularity of tech stocks, sometimes on the ex-dividend day, the stock price can increase quite noticeably. Leading stocks like Walmart and Johnson & Johnson also often see their prices rise on the ex-dividend date. The reason is simple—before the ex-dividend date, the stock price already reflects expectations, and investors are optimistic about the company’s fundamentals. The price adjustment then becomes an opportunity to buy.

So, when does the stock price tend to fall before the ex-dividend date? Usually, this happens when the stock price has already risen to a high level before the ex-dividend date, and some investors choose to realize profits early, especially those looking to avoid taxes. In such cases, buying stocks right before or on the ex-dividend date may not be worthwhile, because the price might already include excessive expectations or face selling pressure.

I think the key is to look at whether the stock is experiencing “price fill” or “discount.” Price fill means the stock price gradually recovers to its original level after the ex-dividend date, indicating investors are optimistic about the company’s prospects. Discount means the stock remains depressed, usually reflecting concerns about the company’s future.

To judge whether buying on the ex-dividend date is worthwhile, I suggest considering three aspects: first, whether the stock price was already high before the ex-dividend date; second, how the stock has historically performed after the ex-dividend date; third, the company’s fundamentals.

For companies with solid fundamentals and industry leadership, the ex-dividend adjustment is just part of the price correction, not a loss of value. In fact, it can be an opportunity to buy quality assets at a lower price. In such cases, long-term holding is often more profitable.

Another detail many overlook is tax costs. If you buy dividend stocks in a regular taxable account, although the stock price drops on the ex-dividend date, you still have to pay taxes on the received dividends. Additionally, in Taiwan’s stock market, there are transaction fees and trading taxes, which must also be factored in.

In summary, a price drop on the ex-dividend date is not inevitable, and whether to buy or not should not be based solely on that day. It’s important to consider the company’s fundamentals, historical performance, and your own investment goals.