Is it really worthwhile to buy high-dividend stocks after ex-dividend? The three key decision factors investors must know

When it comes to stable dividend-paying companies, investors often think of their solid business models and abundant cash flows. Indeed, many long-term outperforming listed companies maintain a tradition of stable dividends. In recent years, an increasing number of investors regard high-dividend stocks as core assets. Even “Stock Mogul” Warren Buffett is particularly fond of these stocks, with over 50% of his assets allocated to high-dividend stocks.

However, for novice investors just starting out, there are often two major dilemmas: Will stock prices definitely drop on the ex-dividend date? Is it more advantageous to buy after the ex-dividend date? This article will debunk these myths one by one.

Is a Price Drop on the Ex-Dividend Date Inevitable?

Theoretically, on the ex-dividend date, shareholders have already received the dividend, and the stock’s value should decrease accordingly, leading to a drop in stock price. But from historical data, a price decline on the ex-dividend date is not necessarily guaranteed. Especially for blue-chip stocks with solid fundamentals, stable performance, and popularity among investors, the stock price often rises on the ex-dividend date.

How Dividends and Rights Issues Affect Stock Price

To understand this phenomenon, we need to first grasp the mechanism of dividends and rights issues:

Rights Issue Scenario: When a company issues new shares or rights, increasing its share capital, the total value remains unchanged. The value per share decreases proportionally, causing the stock price to adjust downward.

Dividend Scenario: When a company pays cash dividends, it effectively reduces its assets. Shareholders receive cash income, but the stock price also tends to decrease correspondingly.

Specific Calculation Example

Suppose a company has an annual earnings per share (EPS) of $3, and the market values it at a P/E ratio of 10, making the stock price $30. The company has stable profits and accumulated substantial cash reserves on its balance sheet, say $5 per share. Thus, the total valuation is $35 per share.

The company considers that holding too much cash is inefficient and decides to pay a special dividend of $4 per share, leaving only $1 per share as reserve. The dividend is announced to be paid on June 17, 2025, with June 15 as the record date.

Theoretical price adjustment on the ex-dividend date: previous day’s closing price minus the dividend. Based on the above, the stock price on the ex-dividend date would adjust from $35 to $31 per share.

In the case of rights issues, the calculation formula is: Post-rights issue stock price = (Pre-rights stock price - Rights issue price) / (1 + Rights issue ratio)

For example, if a company’s stock is $10 before the rights issue, the rights issue price is $5, and the rights ratio is 2-for-1 (two old shares for one new share), then: Post-rights stock price = ($10 - $5) / (1 + 1) = $5 / 2 = $2.50

Note: The above example simplifies the calculation; actual adjustments depend on specific terms.

( Historical Examples Break Common Assumptions

However, although stock prices often decline on the ex-dividend date, it is not always the case. Price movements are influenced by multiple factors, including market sentiment, company performance, industry outlook, and more, not solely the ex-dividend event.

For example, Coca-Cola has a long history of paying dividends, with stable quarterly payments in recent years. In most cases, the stock price slightly drops on the ex-dividend date, but there have also been instances of slight increases. Looking at recent dividend records, on September 14, 2023, and November 30, 2023, Coca-Cola’s stock saw small gains on the ex-dividend dates, while on June 13, 2025, and March 14, 2024, it experienced slight declines.

Apple Inc. shows even more pronounced behavior. As a quarterly dividend payer, driven by the tech stock rally, Apple’s stock often rises significantly on ex-dividend dates. For example, on November 10, 2023, the ex-dividend date, Apple’s stock rose from $182 to $186; on May 12, 2024, it increased by 6.18%.

Other industry giants like Walmart, PepsiCo, and Johnson & Johnson also frequently see stock price increases on ex-dividend dates. Overall, dividend amount, market sentiment, and company performance all influence the stock price behavior on ex-dividend days.

Buying After the Ex-Dividend Date: Three Key Decision Dimensions

There is no absolute answer to this question; it depends on specific circumstances. Investors should evaluate from the following three perspectives:

( 1. Stock price performance before the ex-dividend date

If the stock price has already risen to a high level before the ex-dividend date, many investors will take profits early, especially those seeking to avoid capital gains taxes. Therefore, investors considering buying after the ex-dividend date should be cautious, as the stock price may already reflect excessive expectations or face concentrated selling pressure, making entry riskier.

) 2. Historical observation of post-dividend price trends

Historically, stocks tend to decline more often than rise after the ex-dividend date. For short-term traders, this implies a higher risk of losses after buying, making purchasing near the ex-dividend date less economically advantageous.

However, if the stock price continues to fall to a technical support level and shows signs of stabilization, it might be a good entry point. Entering at this stage could provide a better cost basis.

( 3. Company fundamentals and long-term holding strategy

For companies with solid fundamentals and clear industry leadership, dividend payments should be viewed as part of stock price adjustment rather than a sign of value loss. On the contrary, they offer investors an opportunity to acquire quality assets at more favorable prices.

Buying such stocks after the ex-dividend date and holding long-term is often a more cost-effective strategy because the intrinsic value of the company has not decreased due to the dividend; instead, the price correction makes the stock more attractive.

Hidden Costs of Investing in Ex-Dividend Stocks

) Tax Implications on Dividends

If you buy ex-dividend stocks in qualified accounts (such as IRAs or 401(k)s in the US), generally, you don’t need to worry much about taxes, as these accounts are tax-deferred until withdrawal.

However, in taxable personal accounts, the situation differs. Using the earlier example of buying at $35 and the stock dropping to $31 on the ex-dividend date, investors will face unrealized capital losses while also needing to pay taxes on the $4 dividend—this is a significant tax burden.

If investors plan to reinvest dividends and expect the stock price to recover quickly, buying before the ex-dividend date makes more sense.

Transaction Fees and Taxes

Besides dividend taxes, transaction fees and trading taxes are also costs to consider. For example, in Taiwan’s stock market:

Brokerage fee: Stock price × 0.1425% × discount rate (usually 50-60%)

Transaction tax:

• Ordinary stocks: 0.3%
• ETFs: 0.1%

Transaction tax is calculated by multiplying the stock price by the applicable rate.

Decision Framework for Buying After the Ex-Dividend Date

Based on the above analysis, investors should consider when deciding whether to buy after the ex-dividend date:

• Assess the stock price position before purchase: high prices carry higher risk; lower prices may offer better opportunities
• Observe historical price rebound patterns: a rebound indicates market optimism; continued weakness suggests caution
• Verify company fundamentals: leading stocks often see opportunities on ex-dividend dates
• Calculate actual costs: consider taxes and fees to determine if the potential gains outweigh expenses
• Clarify investment horizon: short-term trading differs from long-term holding strategies

The concepts of fill-and-recover (填權息) and discount (貼權息) are key in evaluation. Fill-and-recover refers to stock prices gradually rising after the ex-dividend date back to pre-dividend levels, reflecting positive market outlook; discount (貼權息) indicates continued weakness, often due to earnings concerns or market environment changes.

In summary, whether to buy after the ex-dividend date should be based on a comprehensive assessment of company fundamentals, market conditions, personal tax situations, and investment horizon—not blindly chasing dividends. For high-quality blue-chip companies, the price correction after the dividend payout often presents a long-term investment opportunity.