Is buying stocks on the ex-dividend date worth it? A final investment decision guide for the last day to buy on the ex-dividend date

Many investors have a special fondness for high-dividend stocks, but they face the same dilemma: Will the stock price definitely fall on the ex-dividend date? Is entering after the last buy date of the ex-dividend period truly profitable or not?

Stock Price Drop on Ex-Dividend Date Is Not Inevitable

There is a common saying in the market—that stock prices must fall on the ex-dividend date. But the reality is far more complex than the theory suggests.

From a mechanism perspective, ex-dividend indeed causes the theoretical value of a stock to decrease. Suppose a company earns $3 per share annually, valued at a P/E ratio of 10, the stock price would be $30. If the company has $5 per share in idle cash on its books, the total valuation rises to $35. When the company decides to distribute $4 per share as cash dividends, the theoretical stock price after the ex-dividend date should be $31.

However, historical data shows that stock prices on the ex-dividend date do not follow an absolute pattern. Leading companies like Coca-Cola and Apple have experienced price increases on multiple ex-dividend rights days. For example, Apple’s stock price on the ex-dividend date of November 10, 2023, rose from $182 to $186, and recently, on May 12, it even gained 6.18%. Industry giants like Walmart, Pepsi, and Johnson & Johnson also often see counter-trend rises on ex-dividend days.

The reason is simple: stock price movements are influenced by multiple factors—market sentiment, company performance, economic environment, and more—far beyond just the ex-dividend event.

Timing of the Last Buy on the Ex-Dividend Date

Deciding whether to enter before or after the last buy date of the ex-dividend period requires consideration from three dimensions:

First, the 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 shareholders will choose to realize profits early, especially to avoid tax burdens. At this point, the stock price already includes excessive expectations, making it easier for new investors to buy at a high level.

Second, the historical probabilities of “filling the rights and dividends” versus “discounting the rights and dividends”

“Filling the rights and dividends” refers to the stock price gradually recovering to pre-ex-dividend levels after the event, indicating market optimism about the company’s prospects; “discounting the rights and dividends” is the opposite, with the stock price remaining sluggish and unable to rebound, reflecting market concerns about the company.

Statistics show that stocks tend to decline more often in the short term after the ex-dividend date rather than rise. For short-term traders, entering around the last buy date of the ex-dividend period carries higher risks. But if the stock price continues to fall to a technical support level and shows signs of stabilization, that could be an opportunity to buy low.

Third, the company’s fundamentals and investment horizon

For leading companies with solid fundamentals, the ex-dividend adjustment is essentially a price correction rather than a value destruction. For long-term investors, entering during the price pullback after the last buy date of the ex-dividend period can allow them to acquire quality assets at a more favorable price, making it more worthwhile in the long run.

Hidden Costs of Ex-Dividend Investing Cannot Be Ignored

Dividend Tax Burden

Investors holding stocks in taxable personal accounts should be aware: if you buy at $35 before the ex-dividend date and the stock drops to $31 on the ex-dividend day, you face both unrealized capital loss and dividend tax burdens simultaneously. Conversely, purchasing through tax-deferred accounts like IRA or 401K avoids these tax issues.

Transaction Costs

For example, in Taiwan’s stock market, the trading fee is stock price × 0.1425% × broker discount rate (usually 50-60%). When selling, you also pay a transaction tax—0.3% for ordinary stocks and 0.1% for ETFs. These seemingly small costs can significantly eat into returns when trading frequently.

Complete Checklist for Rational Decision-Making

Investors should consider the following comprehensively when deciding whether to enter before or after the last buy date of the ex-dividend period:

• The company’s competitive position within the industry and fundamental stability
• The stock price increase before the ex-dividend date and current valuation level
• Their own investment horizon (short-term vs. long-term)
• Personal tax situation and cost tolerance
• The sustainability of dividends and historical payout records

In short, there is no universal answer to the decision of entering at the last buy date of the ex-dividend period. Leading companies with stable dividends often provide low-cost entry opportunities during the post-ex-dividend adjustment phase for long-term investors; but for short-term traders, the volatility around the ex-dividend date carries higher risks. Tailoring strategies to one’s own situation is the best approach.