Interpretation of high dividend stock entry timing: Investment decisions around the ex-dividend last purchase date

Many investors have a special fondness for companies with stable dividends, as consistent payouts often indicate a solid business model and ample cash flow. In fact, the fact that Buffett allocates more than half of his assets to high-dividend stocks shows that these stocks have long been favored by seasoned investors. But for beginners just starting to invest in dividend stocks, the most common question is: Should I buy before or after the ex-dividend date? Will the stock price definitely drop on the ex-dividend date?

The Truth About Stock Price Performance Before and After the Last Purchase Date of the Ex-Dividend

Many believe that stock prices must fall on the ex-dividend date, but this idea is actually too absolute. While theoretically, the stock price is adjusted on the ex-dividend date, historical data shows that a price drop on the ex-dividend date is not necessarily guaranteed, especially for blue-chip stocks with solid fundamentals and strong performance, which often see price increases on the ex-dividend date.

The Mechanism of Ex-Dividend Impact on Stock Price

To understand why this happens, we need to clarify how ex-rights and ex-dividends affect stock value:

When a company pays cash dividends, it means the company’s assets decrease, so the stock price is adjusted downward. For example, if a company earns $3 per share annually and is valued at a P/E ratio of 10, the stock price would be $30. If the company also holds $5 in cash per share, the total valuation is $35. When the company declares a special dividend of $4 per share, leaving $1 per share as retained earnings, the theoretical stock price adjusts to $31.

Regarding rights issues, the calculation is a bit more complex: Post-issue stock price = (Pre-issue price - issue price) / (1 + issue ratio). For example, if a stock trades at $10 before the dividend, with a rights issue price of $5, and a ratio of 2-for-1, then the post-issue average price is approximately: ( ($10 - $5) / (2 + 1) ≈ $1.67.

) Real Cases Disprove Single Conclusions

Coca-Cola has a long history of stable quarterly dividends. On most ex-dividend dates, the stock dips slightly, but on October 13, 2023, and November 30, 2023, the stock actually rose slightly; in some ex-dividend days in 2025, it dipped marginally.

Apple’s performance is even more notable. Due to recent enthusiasm for tech stocks, Apple sometimes sees significant gains on ex-dividend dates. 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% on the ex-dividend date.

Similar patterns are observed in industry giants like Walmart, Pepsi, and Johnson & Johnson. This indicates that stock price movements are influenced by multiple factors—dividend amount, market sentiment, company performance—all affecting the actual performance on ex-dividend days.

Is It More Profitable to Buy After the Ex-Dividend Date? A Decision Framework

Whether you can profit by entering around the ex-dividend date depends on a comprehensive analysis of three dimensions:

( Key Concept: Fill-Right-and-Dividend vs. Discount-Right-and-Dividend

Investors first need to understand two important concepts:

Fill-Right-and-Dividend—After the ex-dividend date, stock prices may temporarily decline, but as investors become optimistic about the company’s prospects, prices gradually recover to pre-dividend levels. This indicates market confidence in future growth.

Discount-Right-and-Dividend—After the ex-dividend date, stock prices remain depressed and fail to recover to pre-dividend levels, usually reflecting investor concerns about the company’s future performance.

Using the previous examples, if the stock price rises from $31 back to $35 after the ex-dividend date, it has completed a fill-right-and-dividend; if not, it is a discount-and-dividend situation.

) Three Major Considerations

(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 prefer to realize gains early, especially to avoid tax burdens. At this point, entering may not be ideal, as the stock price might already include over-optimism or face selling pressure.

(2) Historical Trends After Dividends—Statistically, stocks tend to decline more often than rise after the ex-dividend date, which is less favorable for short-term traders. However, if the stock continues to fall until it hits technical support and shows signs of stabilization, it might be a good buying opportunity.

(3) Fundamental and Long-Term Perspective—For fundamentally solid, industry-leading companies, the ex-dividend behavior is more a price adjustment rather than a sign of value loss. Buying and holding these stocks long-term is often more profitable because their intrinsic value remains intact, and the price correction makes entry more attractive.

Hidden Costs of Ex-Dividend Trading Cannot Be Ignored

Dividend Taxation

If you use tax-advantaged accounts (like the US IRA or 401K), you generally don’t need to worry about taxes, as withdrawals are tax-free. But if you use a taxable account, the situation is different. Taking the earlier example of a $35 stock, if you buy at $35 before the ex-dividend date, and the stock drops to $31 on the ex-dividend date, you face unrealized capital loss and must pay tax on the $4 dividend received.

Transaction Fees and Trading Taxes

In Taiwan’s stock market, transaction fees are calculated as: Stock price × 0.1425% × discount rate (usually 50-60%).

Trading taxes vary by stock type:

• Ordinary stocks: 0.3%
• ETFs: 0.1%

Tax calculation: stock price × tax rate

These costs accumulate and can significantly erode short-term trading profits.

Final Investment Decision Recommendations

Considering dividend amounts, market sentiment, company performance, and tax costs, investors should:

• View dips after ex-dividend as opportunities to accumulate for high-quality, long-term holdings
• For short-term traders, evaluate whether tax and transaction costs justify the potential gains
• Pay attention to technical signals before and after the last purchase date of the ex-dividend period to identify signs of stabilization
• Combine personal investment goals and risk tolerance rather than following the crowd blindly

The value of dividend stocks lies not in chasing short-term volatility but in balancing stable income and asset appreciation over the long term.