Is it inevitable for stock prices to fall on the ex-dividend date? Is it more cost-effective to buy stocks after the ex-dividend date?

Companies with stable dividend payouts typically represent solid business models and healthy cash flows. Many outstanding publicly traded companies have this good tradition. In recent years, high-dividend stocks have become increasingly favored by investors, becoming core holdings for many. Even the “Oracle of Omaha,” Warren Buffett, particularly likes them, with over 50% of his assets allocated to high-dividend stocks.

New investors often have two questions about dividend stocks: Will the stock price definitely drop on the ex-dividend date? Should I buy before or after the ex-dividend date?

Let's take a look at the stock price performance on the ex-dividend date.

Is it Inevitable for Stock Prices to Drop on Ex-Dividend Dates?

Generally speaking, the stock price tends to drop on the ex-dividend date because shareholders have already received the dividend, and the value of the stock naturally decreases. However, historical data shows that the drop in stock price on the ex-dividend date is not a hard and fast rule. Some stable, popular blue-chip stocks often rise on the ex-dividend date instead. A bit strange, isn’t it?

First, let’s understand how ex-dividend and ex-rights affect stock prices:

When a company increases its capital due to stock dividends or rights issues, the value represented by each share decreases while the total value remains unchanged, causing the stock price to naturally adjust downwards.

At the ex-dividend date, the company distributes cash dividends, and the actual assets decrease, which theoretically leads to a corresponding adjustment in the stock price.

Let's look at an example:

Assuming a company has an annual earnings of 3 dollars per share, the market assigns a price-to-earnings ratio of 10, making the stock price 30 dollars.

The company has been profitable for many years, accumulating $5 in idle cash per share. The company has decided to distribute a special dividend of $4 per share, retaining $1 per share as a reserve.

The company announced that dividends will be distributed on January 17, 2026, with January 15 as the record date.

Theoretically, on the ex-dividend date, the company's stock price should change from $35 per share to $31.

As for the situation of stock allocation, the calculation method is:

Post-issue stock price = (Pre-issue stock price - Issue price) / (( + Issue ratio)

For example: Stock price 10 yuan, subscription price 5 yuan, for every 2 shares of original stock, 1 new share is allocated. Post-distribution stock price = (10 yuan - 5 yuan ) / (2 shares + 1 share ) = 5 yuan / 3 ≈ 1.67 yuan

However!

Stocks do not necessarily drop on the ex-dividend date. History shows that stock prices can rise or fall after the ex-dividend date. This is because stock price movements are influenced by various factors, including market sentiment and company performance.

Take a look at Coca-Cola, which pays dividends steadily on a quarterly basis. In most cases, the stock price drops slightly on the ex-dividend date, but sometimes it can also rise. In mid-2025, its stock price experienced only minor fluctuations on the ex-dividend date.

Apple is no exception. In 2025, driven by artificial intelligence and new product lines, the stock prices of certain ex-dividend days actually surged. On the ex-dividend day in August 2025, Apple surprisingly rose by 3.2%! The market's enthusiasm for tech giants is evident.

Blue-chip companies like Walmart, PepsiCo, and Johnson & Johnson often see their stock prices rise on ex-dividend dates.

Dividend amount, market sentiment, and company performance all influence the stock price movement on the ex-dividend date. There doesn't seem to be any absolute rules.

Is it more cost-effective to buy stocks after the ex-dividend date?

It depends on the situation. Three angles to consider:

• Stock price performance before ex-dividend date
• Historical trend of stock price after dividend distribution
• Company's fundamentals and holding period

First, let's introduce two concepts: Subscription Rights and Put Rights.

“Ex-Dividend”: After a stock goes ex-dividend, the price temporarily drops, but later rebounds to the level before the ex-dividend date. Investors are optimistic about the company's prospects.

“Ex-dividend”: After the ex-dividend date, the stock price remains sluggish and has not returned to its original level. Investors are concerned about future performance.

Taking the previous example, if the stock price rises from $31 back to $35, it is ex-dividend; if it does not rise back, it is ex-rights.

Whether it is wise to buy on the ex-dividend date depends largely on the stock price performance of the company before the ex-rights and dividend date.

(1) Considerations Before Ex-Dividend Date: If the stock price is already very high before the ex-dividend date, investors may sell early to take profits, especially those looking to avoid taxes. At this point, buying may not be wise, as the stock price may have already incorporated too much expectation or could face selling pressure. It's somewhat risky.

(2) Historical Trend Observation: Stocks often tend to decline more easily after the ex-dividend date. Short-term traders should be cautious. However, if the stock price drops to a technical support level after the ex-rights date and starts to stabilize, this could be a good buying point.

(3) Fundamentals and Long-term Holding: For leading companies with strong fundamentals, ex-dividend dates resemble price adjustments rather than value impairments. In fact, it may present an opportunity to purchase quality assets at a better price. Therefore, sometimes buying after the ex-dividend date and holding long-term can be more cost-effective. This depends on the quality of the company.

Implicit Costs of Participating in Ex-Dividend Stocks?

Dividend Tax:

If investing through tax-deferred accounts like IRA or 401K in the United States, there are not many tax issues, and taxes do not need to be paid before withdrawal.

But using a personal taxable account is different. Suppose you buy in at $35 before the ex-dividend date, and on the ex-dividend day it drops to $31. The investor not only faces an unrealized loss but also has to pay taxes on the $4 dividend received. It's a bit frustrating.

Of course, if you plan to reinvest the dividends and believe that the stock price will recover quickly, buying before the ex-dividend date is still reasonable.

Transaction Fees and Taxes:

Don't forget there are these fees.

Calculation of transaction fees for the Taiwan stock market:

Stock Price × 0.1425% × Brokerage Discount Rate (Generally 50% to 60%)

Transaction Tax (to be paid upon sale):

• Common Stock: 0.3%
• ETF: 0.1%

Transaction Tax = Stock Price × Corresponding Tax Rate

In general, the stock price performance on ex-dividend days is influenced by various factors. Investment decisions should comprehensively consider the above factors, in conjunction with one’s own investment objectives and risk tolerance. There is no one-size-fits-all strategy, as everyone’s situation is different.

Frequently Asked Questions

What is ex-dividend and ex-rights?

“Ex-dividend” is the action of a listed company distributing part of its profits to shareholders.

“Ex-dividend”: The company distributes cash to shareholders, similar to the fixed interest of a time deposit, directly allocated to the securities account based on the number of shares held.

“Ex-rights”: The company distributes shares to shareholders. Because they are shares, the price will fluctuate with the market, making it riskier than ex-dividend and the returns less certain.

When the company announces the distribution of dividends, it will determine the record date and the ex-dividend date. Only shareholders who hold shares on the record date will be eligible to receive cash dividends or stock dividends.