Recently, I found that many novice investors think too complicated about the dividend date. Actually, there are only two core questions: Will the stock price definitely fall on the dividend date? And when should I enter the market?

First, the conclusion: stock prices do not necessarily fall on the dividend date. This is a common misconception. Indeed, on the ex-dividend date, when the company distributes cash to shareholders, theoretically, the value per share should decrease, and the stock price should adjust accordingly. But in reality, things are often not that simple.

Take Coca-Cola as an example. This company has a long history of paying dividends regularly every quarter. You will find that on most ex-dividend dates, the stock price slightly drops, but there are also many times when it rises instead. In 2023, during two dividend dates, Coca-Cola's stock actually increased slightly. Apple is even more exaggerated; because tech stocks have been highly sought after in recent years, Apple often sees significant gains around dividend dates. Industry leaders like Walmart, Pepsi, and Johnson & Johnson also frequently see stock price increases on dividend days.

Why is this happening? Because stock prices are influenced by more than just dividends. Market sentiment, company performance, and the overall economic environment all play a role. Sometimes, dividends are interpreted by the market as a sign that the company's cash flow is healthy and its performance stable, which boosts investor confidence.

So, when is a good time to buy? It depends on three perspectives.

First, look at the stock price performance before the dividend. If the price has already risen to a high level, many investors choose to take profits early, especially those looking to avoid taxes. Entering at this point might not be very smart because the stock price may have already priced in the dividend expectation, and there could be selling pressure after the dividend.

Second, review the historical trend. Historically, stocks tend to decline more often after dividends are paid. This is not friendly to short-term traders, as the risk of loss is higher if you buy in. However, if the stock price falls to a technical support level and begins to stabilize, that could be a good buying opportunity.

Most importantly, consider the company's fundamentals. For companies with solid fundamentals and stable industry positions, the dividend date is just part of the stock price adjustment, not a reduction in value. It might even provide long-term investors with a chance to buy quality assets at a cheaper price. Warren Buffett especially favors such stocks; over 50% of his assets are invested in high-dividend-paying stocks, for this very reason.

But don’t forget the hidden costs. If you hold stocks in a regular taxable account and buy before the dividend date, when the stock price drops on that day, you will face unrealized capital losses and have to pay taxes on the dividends received. These taxes can be substantial. There are also trading fees and transaction taxes. For example, in Taiwan’s stock market, the trading fee is about 0.1425% of the stock price times the discount rate, and a 0.3% transaction tax is paid when selling (ETFs are 0.1%).

Therefore, when investing in dividend stocks, the key is to look at whether the stock is “ex-dividend” (filling the rights) or “ex-dividend with a discount” (trading at a discount). Filling the rights means the stock price gradually recovers after the dividend, indicating investor confidence in the company's prospects. Trading at a discount usually indicates investor concerns about the future. For long-term investors, buying companies with solid fundamentals around the dividend date and holding for the long term is often the most cost-effective strategy. Because the intrinsic value of the company doesn’t change, and the price correction actually makes the stock cheaper.