Will the stock price rise after the dividend payout? Uncovering the truth behind the price changes of dividend stocks

Stock Price Fluctuations on Ex-Dividend Dates Are Not Fixed

Many novice investors hold a deeply ingrained misconception: they believe stock prices必然 fall on the ex-dividend date. But in reality, this perception is overly absolute. Based on historical data, the performance of stock prices on ex-dividend dates depends on multiple complex factors, rather than a single condition.

Take Coca-Cola as an example. The company has a long history of stable quarterly dividends, but its stock price behavior on ex-dividend rights days is inconsistent. On September 14, 2023, and November 30, 2023, the two ex-dividend rights days, Coca-Cola’s stock price actually saw slight increases; whereas on June 13, 2025, and March 14, 2024, it experienced slight declines. The case of Apple is even more convincing — due to the continued popularity of tech stocks in recent years, Apple’s stock often did not decline on ex-dividend days, but instead surged significantly, such as on November 10, 2023, when the price rose from the previous day’s $182 to $186, with a 6.18% increase on May 12, 2024.

This illustrates an important fact: Will stock prices rise after the ex-dividend date? The answer is not simply “yes” or “no,” but depends on the interaction of market sentiment, company fundamentals, overall economic environment, and other variables.

Understanding the Mathematical Logic Behind Ex-Dividend Effects on Stock Prices

To understand why stock prices change on ex-dividend dates, we first need to grasp why stock prices theoretically adjust.

Suppose a company earns $3 per share annually, and the market values it at a 10x P/E ratio, making the stock price $30. Over time, accumulated profits and cash reserves amount to $5 per share, so the total valuation per share is $35.

When the company announces a dividend of $4 per share, with $1 retained as reserve, on the ex-dividend date, the theoretical stock price should adjust from $35 to $31 — that is, the previous day’s closing price minus the dividend amount to be paid out.

Mathematically, this makes sense: the company’s assets decrease, and the value per share correspondingly shrinks.

But in reality, the situation is often much more complex.

The Key Roles of “Fill-Right” and “Discount” Phenomena in Ex-Dividend Price Movements

To truly answer “Will stock prices rise after the ex-dividend date,” we need to introduce two core concepts.

Fill-Right Phenomenon refers to stocks that, after dropping slightly post-ex-dividend, gradually recover and return to pre-dividend levels over time. Using the above example, if the stock price rises from $31 back to $35, the fill-right is complete. This indicates market confidence in the company’s long-term value, supported by solid performance.

Discount Phenomenon is the opposite — stocks remain depressed for a considerable period after the ex-dividend date and fail to recover to pre-dividend levels. This often signals investor doubts about the company’s growth prospects, possibly due to declining earnings, worsening market conditions, or increased industry competition.

Looking at industry giants like Walmart, PepsiCo, Johnson & Johnson, they often exhibit clear fill-right characteristics around ex-dividend dates, reflecting market recognition of their long-term value.

Optimal Entry Timing Before and After Ex-Dividend Dates

Once you understand whether “Will stock prices rise after the ex-dividend date,” the next practical question is: When is the best time to buy?

Pre-ex-dividend stock performance is crucial. If a stock has already risen to a high level before the ex-dividend date, many investors choose to take profits early to avoid taxes. This can lead to selling pressure, making entry more challenging and potentially causing short-term losses for new buyers.

Historically, stock prices tend to decline more often than rise immediately after the ex-dividend date. This is unfavorable for short-term traders. However, if the stock continues to decline after the ex-dividend date, reaching technical support levels and showing signs of stabilization, it may present a good buying opportunity.

For fundamentally strong companies with industry-leading positions, the ex-dividend adjustment is a natural part of stock price behavior, not a sign of value destruction. In such cases, the answer to “Will stock prices rise after the ex-dividend date” is often yes — at least in the medium to long term, as the stock tends to fill the gap (fill-right). Buying quality assets at a more favorable price then becomes a more cost-effective long-term strategy.

Hidden Costs of Participating in Dividend Stocks

Even if you understand the regularities of stock price movements on ex-dividend dates, investors should be aware of several hidden costs.

Tax Burden is the foremost consideration. If you buy dividend stocks within tax-advantaged accounts (like IRAs or 401(k)s in the US), taxes are not an issue. But if you buy in a taxable account, the situation becomes more complex. For example, if you buy at $35 before the ex-dividend date, and the stock drops to $31 on the ex-dividend date, you face an unrealized capital loss while also having to pay taxes on the $4 dividend. This “loss plus tax” double whammy can significantly erode dividend returns.

Transaction Costs also matter. For instance, in the Taiwan stock market, trading fees are calculated as stock price multiplied by 0.1425% times a discount rate (usually 50-60%). The transaction tax on selling is 0.3% for regular stocks or 0.1% for ETFs. These seemingly small percentages can eat into profits substantially, especially with high-frequency trading.

For investors planning short-term trades around ex-dividend dates, these costs must be factored into expected returns; otherwise, even high dividend yields can be offset.

Rational Strategies: A Holistic View of Ex-Dividend Approaches

Returning to the initial question, “Will stock prices rise after the ex-dividend date” — the answer depends on a comprehensive assessment of three dimensions.

First, the market performance before the ex-dividend date. Has the stock already risen to a high level? Is there over-optimism? These factors influence whether the ex-dividend date is a good entry point.

Second, the company’s dividend history. Can it sustain stable dividends? Has it historically exhibited fill-right phenomena? These reflect market confidence in the company’s long-term value.

Third, your investment time horizon. Short-term traders and long-term holders have very different strategies — the former are more vulnerable to hidden costs, while the latter can benefit from the company’s long-term growth.

Warren Buffett, who allocates over 50% of his assets to high-dividend stocks, employs a super-long-term holding strategy, which helps offset short-term volatility and transaction costs. For most ordinary investors, this may be the most valuable approach to emulate.