I just saw someone ask earlier, is buying stocks on the ex-dividend date worth it? This question has actually troubled many novice investors. I want to discuss this matter from a practical perspective.

First, it’s important to understand a basic logic. If a company can consistently pay stable dividends over the long term, it usually indicates that its business model is solid and its cash flow is healthy. Even Warren Buffett favors high-dividend stocks, with over 50% of his asset allocation in high-yield dividend stocks. But the key question is, will stock prices definitely drop on the ex-dividend date?

I’ve observed for a period of time and found that the answer is actually no. Although theoretically, stock prices should fall on the ex-dividend date (because the company’s cash decreases), the actual situation is much more complex. Take Coca-Cola as an example; it pays dividends quarterly, but on the ex-dividend date, the stock sometimes drops, sometimes even rises. Apple is even more interesting—over the past year, tech stocks have been in high demand, and on the ex-dividend date, it has even experienced gains of over 6%. Leading stocks like Walmart, Pepsi, and Johnson & Johnson also often see stock price increases on the ex-dividend date. So, stock price movements are influenced by multiple factors, not just the ex-dividend event; market sentiment, company performance, and other factors all play a role.

There are two concepts particularly important here. One is “fill-the-gap”—after the ex-dividend date, the stock price drops, but as investors become optimistic about the company’s prospects, the stock gradually recovers and returns to pre-dividend levels. This indicates the market’s optimism about the company’s future growth. The other is “stick-to-the-gap”—after the ex-dividend date, the stock price remains sluggish and does not recover to previous levels. This usually means investors are worried about the company’s future performance, possibly due to poor earnings or changes in market conditions. Understanding the meaning of “stick-to-the-gap” is crucial for judging the right buying opportunity.

So, when is the best time to buy around the ex-dividend date? Here’s my observation.

If the stock price has already risen to a high level before the ex-dividend date, many investors will take profits early, leading to selling pressure. Buying at this point is not wise because the stock price may already include excessive expectations.

Historically, stocks tend to fall more often than rise after the ex-dividend date, which is unfavorable for short-term traders. But if the price drops to a technical support level and begins to stabilize, that could be a good buying opportunity.

Most importantly, look at the company’s fundamentals. For companies with solid fundamentals and industry leadership, the dividend payout is more of a price adjustment rather than a reduction in value. In such cases, buying after the dividend and holding long-term is often more profitable because the intrinsic value of the company remains unchanged, and the price correction makes the stock more attractive.

But don’t forget the hidden costs. If you buy stocks in a regular taxable account, on the ex-dividend date you face unrealized capital losses, and you also need to pay taxes on the dividends received. For example, in Taiwan’s stock market, the transaction fee is the stock price multiplied by 0.1425% times a discount rate (usually 50-60%), and when selling, you pay a transaction tax—0.3% for regular stocks, 0.1% for ETFs. These costs add up and can impact your actual returns.

Therefore, when making investment decisions, you should consider the stock’s performance before the ex-dividend date, historical trends, the company’s fundamentals, as well as your own investment goals and risk tolerance. Don’t be scared by the risks of “stick-to-the-gap,” and don’t blindly chase high prices. Rational analysis is the key to long-term profits.