Is it really worth entering after the ex-dividend date? A stock price decline is not inevitable; the key lies in these three points

Many investors have a love-hate relationship with high-dividend stocks. On one hand, companies that consistently pay dividends truly represent solid business models and healthy cash flows. Such stocks account for over 50% of Buffett’s investment portfolio. On the other hand, investors often face dilemmas on ex-dividend days: Will the stock price drop? Should they buy before or after the dividend payout?

Stock Price Drop on Ex-Dividend Day: Seems Inevitable, But Not Always

Theoretically, stock prices should decline on the ex-dividend date. When a company distributes cash dividends, it’s equivalent to a reduction in the company’s assets, and the value per share decreases accordingly. For example, suppose a hypothetical company has a per-share valuation of $35 (with annual earnings of $3, a P/E ratio of 10, plus $5 in cash). If the company announces a special dividend of $4 per share, the stock price should theoretically fall from $35 to $31.

However, real-world situations are much more complex. Historical data shows that a decline on the ex-dividend date is not guaranteed, especially for stable, well-performing leading stocks that investors favor.

Take Coca-Cola as an example. The company has paid dividends quarterly for many years. On the ex-dividend dates of September 14, 2023, and November 30, 2023, the stock actually rose slightly, and only on some ex-dividend dates in 2025 did the stock experience minor declines. Apple’s situation is even more notable: on the ex-dividend date of November 10, 2023, the stock price rose from $182 to $186, an increase of nearly 2.2%. Industry giants like Walmart, Pepsi, and Johnson & Johnson also often see gains on ex-dividend days.

Stock price movements are influenced by multiple factors—market sentiment, company performance, industry trends, macroeconomic environment—all of which can overshadow the impact of the dividend itself.

Three Key Decision Dimensions for Entering After the Ex-Dividend Date

Whether it’s worthwhile to buy after the ex-dividend date depends on evaluating the following three aspects:

Dimension 1: Stock Price Trend Before the Ex-Dividend Date

If a stock has already risen to a high level before the ex-dividend announcement, many investors may take profits early, and some may sell due to tax considerations. Entering at this point could face selling pressure and overly optimistic expectations, increasing short-term risks. Conversely, if the stock price continues to decline after the dividend payout to a technical support level and begins to stabilize, that might be a better entry point.

Dimension 2: Historical Recovery Pattern—Fill-Back vs. Underperformance

“Fill-back” refers to the stock price gradually recovering to pre-dividend levels after the ex-dividend date, reflecting investor optimism about the company’s prospects. “Underperformance” indicates the stock remains depressed and fails to recover, often signaling investor concerns about the company’s fundamentals.

Using the hypothetical company example, if the stock price rises from $31 back to $35, it has successfully filled the dividend gap. Conversely, if it remains below $35, it’s underperforming. Historically, stocks that fill the dividend gap tend to be stable, industry-leading companies with solid performance.

Dimension 3: Company Fundamentals and Holding Period

For companies with strong fundamentals, dividends are more about price adjustments rather than value loss. These companies often offer more favorable entry prices after the dividend payout. If planning for long-term holding, entering after the ex-dividend date might be a smarter strategy, as the intrinsic value remains unchanged, and the price decline increases the margin of safety.

Have You Calculated the Hidden Costs of Dividend Trading?

Tax Costs

If you buy dividend stocks in tax-advantaged accounts (like US IRA or 401K), you don’t need to worry about dividend taxes. But if you use a taxable account, the situation becomes more complex. Investors may face unrealized capital losses and dividend income taxes simultaneously. For example, buying at $35, if the price drops to $31 on the ex-dividend date, you also need to pay tax on the $4 dividend.

Transaction Fees and Taxes

In Taiwan’s stock market, the trading fee is calculated as: stock price × 0.1425% × discount rate (usually 50-60%). When selling, you also pay transaction tax: 0.3% for regular stocks, 0.1% for ETFs, calculated directly on the stock price.

These hidden costs can directly erode short-term trading gains and should be factored into decision-making.

Summary

Whether entering after the ex-dividend date is wise or not has no absolute answer. Investors should comprehensively evaluate pre-dividend stock performance, the company’s ability to fill the dividend gap, their own tax situation, and holding period. After fully considering hidden costs like transaction fees and taxes, make rational decisions aligned with personal goals. Short-term traders should exercise caution, while long-term investors might find better entry opportunities after the dividend payout in high-quality companies.