Does the stock price always fall after dividends and rights issues? Only by understanding the pattern of filling rights and dividends can you accurately time the bottom.

Many investors are deceived by a false illusion: The stock price drops on the ex-dividend date is an iron law. In reality, this is far from inevitable. Let’s start by breaking down the basic mechanism, then use actual data to dispel this myth.

How does the ex-dividend impact stock prices?

The essence of ex-dividend is asset redistribution. When a company decides to pay dividends, cash flows from the company’s account into shareholders’ pockets, and this money must be deducted from the company’s total value.

For example: Suppose a company earns $3 per share annually, with a market P/E ratio of 10, valuing each share at $30. The company has long-term profits and has accumulated an excess cash of $5 per share on its balance sheet, so the overall valuation reaches $35 per share.

When it declares a $4 dividend, theoretically, on the ex-dividend date, the stock price will adjust to $31 per share (35 - 4 = 31).

But this is just a theoretical price; reality is often more complex.

Stock split calculations require understanding the logic

If it’s a stock split rather than a dividend, the calculation formula is:

Post-split stock price = (Pre-split stock price - Split price) / ((1 + Split ratio)

For example, if the stock price is originally $10, with a split price of $5, and a split ratio of 2:1 (holding 2 shares, get 1 new share), then:

Post-split price = (10 - 5) / ((2 + 1)) = $1.67

Theoretically, the price should decrease accordingly, but actual market movements often defy this deduction.

Historical data breaks the “inevitable decline” myth

Looking at Coca-Cola’s recent ex-dividend performances:

• On September 14, 2023, and November 30, 2023, the ex-dividend dates: stock price slightly increased
• On June 13, 2025, and March 14, 2025, the ex-dividend dates: stock price slightly decreased

Apple Inc. (Apple) shows an even more obvious pattern. Driven by strong tech stocks, its ex-dividend days often see rises:

• On November 10, 2023, ex-dividend date: from $182 to $186
• Most recently, on May 12, 2025: a 6.18% increase

Industry giants like Walmart, PepsiCo, Johnson & Johnson also often see stock price increases on ex-dividend days.

The conclusion is clear: The rise or fall of stock prices on ex-dividend days is not solely determined by the event itself. Market sentiment, earnings expectations, industry heat, all play important roles.

Understanding the key differences between fill-and-restore and贴权息

To judge whether to enter before or after the dividend, two core concepts must be grasped:

Fill-and-restore (填權息): After the stock goes ex-dividend, it may dip short-term, but as investors remain optimistic about the fundamentals, the stock price gradually recovers to pre-dividend levels or higher. This indicates market optimism about the company’s future growth.

贴权息: After the stock goes ex-dividend, the price remains sluggish and fails to recover. This usually reflects investor concerns about the company’s prospects, possibly due to poor earnings or changing market conditions.

Using the previous example, if the stock price recovers from $31 to $35 or higher, it’s fill-and-restore; if it hovers around $30-$32, it’s贴权息.

Is buying on the ex-dividend date worthwhile?

(1) The stock price performance before the ex-dividend date is the first signal

If the stock price has already surged to a high before the ex-dividend date, many investors will choose to realize gains early, especially those seeking to avoid personal income tax. Entering at this point means buying at a high, with higher risk, unless you are confident in the company’s fundamentals.

(2) Historical trends suggest short-term risks

Overall, stocks tend to decline more often than rise after the ex-dividend date, which is unfavorable for short-term traders. But if the price drops to a technical support level and stabilizes, it could become an excellent buying opportunity.

(3) Company fundamentals determine long-term returns

For companies with solid fundamentals and industry leadership, dividends are more about price adjustment than value destruction. They even provide opportunities for investors to acquire quality assets at lower costs. For such companies, buying after the ex-dividend and holding long-term is often more profitable, as intrinsic value remains unchanged.

Hidden costs that cannot be ignored

Tax burden

When purchasing ex-dividend stocks in a taxable account, investors face double taxation: dividend tax and potential capital loss. Suppose you buy at $35 before the ex-dividend date, and the price drops to $31 on the ex-dividend date; you pay tax on the $4 dividend, and also face unrealized losses. In contrast, tax-advantaged accounts like IRA or 401K can avoid this issue.

Transaction fees and trading taxes

In Taiwan’s stock market, trading costs are significant:

• Commission fee = stock price × 0.1425% × discount rate (about 50-60%)
• Both buy and sell sides incur fees
• Trading tax (upon sale): ordinary stocks 0.3%, ETFs 0.1%

Though these costs seem small, frequent trading can significantly eat into returns.

Rational investment decision framework

Considering the stock price performance on ex-dividend days, fill-and-restore mechanisms, taxes, and trading costs, a rational strategy should be:

• Long-term investors: Focus on company fundamentals rather than short-term volatility; quality companies’ dividends often create low-cost buying opportunities.
• Short-term traders: Monitor technical support levels closely, wait for signs of stabilization before entering.
• Tax optimization: Prioritize buying ex-dividend stocks in tax-advantaged accounts to reduce tax costs.
• Cost awareness: Fully consider commission and tax costs, avoid overtrading.

Dividends are not risks but a process of re-pricing. Mastering the rules of fill-and-restore can help you seize real opportunities amid market fluctuations.