Recently, many friends have asked me a question: does the stock price always fall on the ex-dividend date? Should I buy before the dividend date or wait until after the dividend? Honestly, this is a very good question because it touches on a pain point for many dividend stock investors.

Let me first give everyone an intuitive example. Suppose a company earns $3 per share annually, and the market assigns it a 10x P/E ratio, so the stock price would be $30. The company has accumulated quite a bit of cash, say $5 per share, so the total valuation reaches $35. Later, the company decides to distribute a $4 cash dividend per share, keeping only $1 as reserve. The declared ex-dividend date is June 15.

Theoretically, on the ex-dividend day, the stock price should drop from $35 to $31 because the company's assets have actually decreased by $4. This is the basic logic behind the stock price decline on ex-dividend dates—dividends are paid in cash, reducing the company's assets, so the stock price naturally adjusts downward.

But here’s an interesting phenomenon. Looking at historical data, although stock prices often decline on ex-dividend dates, it’s not always the case. Established dividend-paying companies like Coca-Cola usually see a slight drop on ex-dividend days, but on September 14 and November 30, 2023, the stock prices actually rose slightly on those ex-dividend dates. Even more extreme, Apple’s ex-dividend date last May 12 saw the stock price jump by 6.18%. Leading stocks like Walmart, Pepsi, and Johnson & Johnson also often rise against the trend on ex-dividend days.

Why does this happen? Because stock price movements are influenced by multiple factors, not just the ex-dividend event. Market sentiment, company performance, overall economic conditions—all play a role. A fundamentally solid company, with investors optimistic about its future, may see its stock price remain stable or even rise on the ex-dividend date. In fact, the dividend payout might present a buying opportunity at a lower price.

Now, returning to the practical question: Is it worthwhile to buy stocks after the ex-dividend date?

It depends on three perspectives. First, has the stock price already run up to a high level before the ex-dividend date? If the price has surged significantly beforehand, many investors might take profits early, and entering at that point could be risky. Second, what has been the historical trend of the stock price after the ex-dividend date? Generally, stock prices tend to continue declining rather than rising after the dividend, which is unfavorable for short-term traders. However, if the price falls to a technical support level and shows signs of stabilization, that could be a good entry point. Third, what is the company's fundamental situation?

Here, two important concepts are introduced: "price fill" (填權息) and "discounted rights" (貼權息). Price fill refers to the phenomenon where, after the ex-dividend date, the stock price temporarily drops but gradually recovers to pre-dividend levels as investors remain optimistic about the company's prospects. This indicates positive investor sentiment about the company's future. Discounted rights, on the other hand, mean the stock price remains depressed and does not recover to pre-dividend levels, often reflecting investor concerns about the company's outlook.

For companies with solid fundamentals and industry-leading positions, the ex-dividend adjustment is more of a price correction rather than a loss of value. Buying such stocks after the ex-dividend date and holding long-term is often more profitable because the intrinsic value remains unchanged, and the price correction makes the stock more attractive.

However, don’t forget the hidden costs. If you buy ex-dividend stocks in a personal taxable account, you face two hits: unrealized capital loss on the ex-dividend date and taxes on the received cash dividends. Additionally, there are transaction fees and trading taxes. For example, in Taiwan’s stock market, the trading fee is 0.1425% of the stock price multiplied by a discount rate (usually 50-60%), and when selling, you also pay a transaction tax—0.3% for regular stocks and 0.1% for ETFs.

In summary, while stock prices often decline on ex-dividend dates, it’s not always the case. Investors should consider the company’s fundamentals, market sentiment, their own tax situation, and trading costs, aligning these with their long-term holding goals. Blindly chasing short-term fluctuations around the ex-dividend date can often be counterproductive.