The truth about high-dividend stocks: Can selling on the ex-dividend date really avoid taxes?

Many investors have a special fondness for high-dividend stocks, which typically represent companies with stable business models and ample cash flow. In fact, companies that can consistently pay stable dividends are indeed more worth holding for the long term. Even “Stock Mogul” Warren Buffett allocates over 50% of his assets to high-dividend stocks, highlighting their investment value.

However, for beginners just entering this field, they often face two dilemmas: Does the stock price always drop on the ex-dividend date? When is the best time to buy? More importantly, many people try to sell on the ex-dividend date to avoid tax costs, but is this strategy really feasible?

Stock Price Drop on Ex-Dividend Date Is Just a Surface Phenomenon

There is a common belief circulating in the market: Stock prices must fall on the ex-dividend date. This statement has some theoretical basis, but the actual situation is far more complex.

Why do stock prices adjust?

When a company distributes cash to shareholders on the ex-dividend date, it means the company’s assets actually decrease. For example, if a stock is priced at $35 per share, including $5 in cash reserves per share, and the company decides to pay a special dividend of $4 per share, theoretically, the stock price should adjust to $31 ($35 - $4).

In the case of stock splits, the situation is slightly more complicated: Post-split stock price = (Pre-split stock price - Split price) / (1 + Split ratio)

For example, if a company’s stock is $10 before the split, with a split price of $5 and a ratio of 2-for-1: Post-split price ≈ (10 - 5) / 2 + 1 ≈ 1.67

But this is just a theoretical expectation; actual stock price movements often tell a different story.

What does historical data show?

Looking back at recent market performance, the stock price behavior on ex-dividend dates can be described as “sometimes up, sometimes down.”

Coca-Cola is a typical example: with a long tradition of paying dividends quarterly, on the ex-dividend dates of September 14, 2023, and November 30, 2023, the stock saw slight increases; whereas on the ex-rights dates of June 13, 2025, and March 14, 2025, the stock price slightly declined. There is no absolute pattern.

Apple’s performance is even more volatile: amid strong enthusiasm for tech stocks, the company often rises against the trend on ex-dividend dates. On November 10, 2023, the ex-dividend date, the stock rose from $182 to $186; this year’s May 12 ex-dividend date saw a gain of 6.18%.

Industry leaders like Walmart, Pepsi, Johnson & Johnson also often see stock price increases on ex-rights and ex-dividend days.

Why does this happen? Stock price movements are influenced by multiple factors: market sentiment, company performance, industry trends, capital flows, etc. The dividend distribution itself is just one variable and not a decisive factor.

Tax Considerations When Selling on the Ex-Dividend Date

Many investors consider selling on the ex-dividend date to avoid dividend taxes. This idea has some merit, but practical implementation requires caution.

Tax cost analysis

If you buy ex-dividend stocks in a taxable account, you face double tax burdens:

• Dividend income tax: Cash dividends received are taxed at personal income tax rates.
• Capital gains tax: Price fluctuations before and after the ex-dividend date generate gains or losses that must also be reported.

Taking the earlier example, if an investor bought at $35 per share before the ex-dividend date, and the price drops to $31 on the ex-dividend date, the investor faces an unrealized capital loss while also paying tax on the $4 dividend.

If using retirement accounts (like US IRA, 401K, etc.) that defer taxes, the situation is different—taxes are only paid upon withdrawal, making this a legal way to avoid dividend taxes.

Hidden costs of transaction fees and taxes

In markets like Taiwan, buying and selling stocks incurs additional costs:

• Buy commission: Stock price × 0.1425% × brokerage discount rate (usually 50-60%)
• Sell transaction tax: 0.3% for regular stocks, 0.1% for ETFs

This means that if an investor aims to sell on the ex-dividend date to avoid dividend tax, transaction costs might offset potential gains, possibly leading to a loss.

Rights Issue and Ex-Rights: Key to Judging the Buying Timing

Investors need to understand two core concepts when deciding whether to buy after the ex-dividend date:

Fill-Right (填權息) — After the ex-dividend date, the stock may dip temporarily, but as investors remain optimistic about the company’s prospects, the stock gradually recovers to pre-dividend levels. This reflects confidence in future growth.

Post-Ex-Rights (貼權息) — The stock remains sluggish after the ex-dividend date and fails to recover. This usually indicates market doubts about the company’s outlook, possibly due to poor performance or changing market conditions.

Is Buying After the Ex-Dividend Date Worth It? It Depends on These Three Points

(1) Stock performance before the ex-dividend date

If the stock has already risen sharply before the ex-dividend date to a high level, many investors choose to take profits early, especially those wanting to avoid tax burdens. At this point, the stock price may already reflect excessive expectations, facing selling pressure. In such cases, selling on the ex-dividend date can help avoid some downside risk.

(2) Historical trend after the ex-dividend date

Statistically, stocks tend to continue declining rather than rising after the ex-dividend date, which is unfavorable for short-term traders. However, if the stock price falls to a technical support level and shows signs of stabilization, it might be a better buying opportunity.

(3) Company fundamentals and long-term holding goals

For companies with solid fundamentals and industry-leading positions, dividend payments are just normal price adjustments, not value destruction. The price correction often provides an opportunity to buy quality assets at a better price. For such companies, buying after the ex-dividend date and holding long-term is generally a more profitable strategy.

Practical Advice: When Should You Sell on the Ex-Dividend Date?

Short-term traders’ perspective — If your goal is to sell on the ex-dividend date to avoid dividend tax and capitalize on short-term volatility, you should meet these conditions:

• The stock has already experienced a significant rally before the ex-dividend date, at a relatively high level
• Technical analysis indicates a short-term pullback risk
• Your personal tax situation would indeed be affected by receiving dividends
• Transaction costs (fees + taxes) do not erode potential gains

Long-term investors’ perspective — If you plan to hold long-term, ignore the stock price fluctuations on the ex-dividend date because:

• The intrinsic value of the company has not decreased due to the dividend
• Price pullbacks offer opportunities to increase holdings
• Over the long run, the probability of fill-right (填權息) far exceeds that of persistent post-ex-right (貼權息)

Overall Strategic Considerations

Dividend-paying stocks’ performance on the ex-dividend date is influenced by multiple factors, with no absolute rule. Investors should base their decisions on their investment goals, tax situation, risk tolerance, and consider:

• The company’s long-term competitiveness and performance
• Personal tax status and account type
• Investment horizon (short-term trading vs. long-term holding)
• Actual transaction costs
• Current market sentiment and technical signals

High-dividend stocks are inherently quality assets, but mastering the timing of selling on the ex-dividend date and planning tax costs according to personal circumstances truly tests investment wisdom.