Recently, I’ve been pondering a question: why are so many people so fond of high-dividend stocks? It’s not hard to understand—companies that pay stable dividends usually represent solid business models and healthy cash flows. Even Warren Buffett allocates more than half of his assets into such stocks. But for beginners just starting to invest in dividend-paying stocks, there are often two questions: Will stock prices definitely drop on the ex-dividend date? Should I buy before or after the ex-dividend date?

I’ve found that many people have a misconception about stock price drops on the ex-dividend date, thinking it’s inevitable. Actually, that’s not true. Theoretically, stock prices tend to decrease on the ex-dividend date because of the cash dividend payout, but the actual situation is much more complex. Take Coca-Cola as an example: although most ex-dividend dates see a slight decline, on September 14 and November 30, 2023, the stock actually rose. Apple’s case is even more extreme—on November 10, 2023, the day of the ex-dividend, its price went from $182 to $186, and on May 12 this year, it increased by 6.18%. Industry leaders like Walmart, Pepsi, and Johnson & Johnson also often see gains on the ex-dividend date.

Why does this happen? In fact, stock price movements are influenced by many factors, not just the ex-dividend event. Market sentiment, company performance, investor expectations—all play a role. For example, suppose a company earns $3 per share annually, valued at 10 times earnings, so each share is worth $30. The company has $5 per share in idle cash, so the total valuation is $35. If the company decides to pay a special dividend of $4 per share, leaving only $1 in reserve, then theoretically, the stock price should drop from $35 to $31 on the ex-dividend date. But in reality, if investors are optimistic about the company’s prospects, the stock price might gradually recover—this is called “filling the dividend gap.” Conversely, if the stock continues to decline without recovery, it’s a “discounted dividend” or a failed dividend fill.

So, is it worthwhile to buy stocks after the ex-dividend date? That depends on several factors. First, look at the stock’s performance before the ex-dividend date—if it has already risen to a high level, many investors might take profits early, and entering at that point may not be wise. Second, review historical trends: stocks tend to decline rather than rise after the ex-dividend date, making short-term trading riskier. But here’s a key point: if the stock price drops to a technical support level and stabilizes, it could actually be a good buying opportunity.

The most important thing is to consider the company’s fundamentals. For companies with steady performance and industry leadership, the ex-dividend adjustment is just part of the stock’s price movement and doesn’t mean a loss of value. Instead, it may provide investors with a chance to acquire quality assets at a better price. Buying and holding such stocks long-term after the ex-dividend date is often a more cost-effective strategy.

However, it’s also important to be aware of hidden costs involved in participating in dividend stocks. If you buy in a regular taxable account, although the stock price drops on the ex-dividend date, you’ll also need to pay taxes on the received dividends—this is a double hit. There are also transaction fees and trading taxes. For example, in Taiwan’s stock market, the transaction fee is 0.1425% of the stock price multiplied by a discount rate (usually 50-60%), and the trading tax for regular stocks is 0.3%, while ETFs are taxed at 0.1%.

In summary, stock price performance on the ex-dividend date is influenced by many factors and is not simply an inevitable decline. Investors should make rational decisions based on their investment goals and risk tolerance, combining company fundamentals and historical performance. Especially for solid, long-term holdings, the ex-dividend date might even be a good opportunity to add to your position.