Is it common for stock prices to decline before the ex-dividend date? Is it still worth entering after the ex-dividend date?

Consistent and stable cash dividends often indicate that a company has a solid business model and sufficient cash flow. Many long-term high-performing listed companies maintain a tradition of regular dividends. Nowadays, an increasing number of investors view high-dividend stocks as core assets in their portfolios. Even “The Oracle of Omaha” Warren Buffett is particularly fond of them, with over 50% of his assets concentrated in high-dividend stocks.

However, for novice investors just starting to explore dividend stocks, they often face dilemmas: Will the stock price necessarily drop before the ex-dividend date? Should I buy before or after the ex-dividend date? Below, we will analyze in depth the stock price performance of dividend stocks during the ex-dividend period.

Is a stock price drop before the ex-dividend date truly unavoidable?

In theory, when the ex-dividend date arrives, since shareholders have already received the dividend, the intrinsic value of the stock should decrease accordingly, leading to a price adjustment. However, historical data shows that a price decline on the ex-dividend date is not an absolute rule. For leading companies with stable performance, long-standing dividend history, and investor favor, the stock price may even rise on the ex-dividend date.

Understanding the mechanism of how ex-rights and ex-dividends affect stock prices:

In the case of rights issues, the company’s increase in share capital causes the value per share to decrease, and the stock price adjusts downward accordingly.

In the case of dividends, paying cash dividends to shareholders means the company’s cash assets are actually reduced. While shareholders receive cash income, the stock price is also adjusted downward to reflect this.

Specific case analysis:

Suppose a company earns $3 per share annually, with a market P/E ratio of 10, resulting in a share price of $30. The company has stable profits and has accumulated $5 per share in cash reserves on its balance sheet, making the total valuation $35 per share.

The company decides to distribute a special dividend of $4 per share, keeping only $1 per share as a reserve for unforeseen needs. The dividend is declared to be paid on June 17, 2025, with the record date on June 15.

In theory, the stock price on the ex-dividend date should adjust from $35 to $31 ($35 - $4).

In the case of rights issues, the calculation formula is: Post-rights stock price = (Pre-rights stock price - Rights issue price) / (1 + Rights ratio)

For example, if a stock is priced at $10, with a rights issue price of $5, and a rights ratio of 2:1, then: Post-rights stock price = (10 - 5) / (2 + 1) = 5 / 3 ≈ $1.67

But the key point is— the stock price on the ex-dividend date is not necessarily to decline. Looking at historical trends, stocks can both fall and rise after ex-rights and ex-dividends. This is because stock price movements are influenced by multiple factors, not solely by the ex-dividend event. Market sentiment, company performance, overall economic conditions, and other factors all play roles.

For example, Coca-Cola, which has a long history of paying dividends and has maintained quarterly dividends in recent years, often sees its stock price slightly decline on most ex-dividend dates, but in some cases, it can also rise slightly. On September 14, 2023, and November 30, 2023, Coca-Cola’s stock rose slightly on the ex-dividend dates; whereas on June 13, 2025, and March 14, 2025, it experienced slight declines.

Apple Inc. is a more typical case. The company also pays quarterly dividends and, buoyed by the tech stock rally in recent years, often sees its stock rise on ex-dividend dates. On November 10, 2023, Apple’s stock increased from $182 to $186 on the ex-dividend date; on May 12, 2023, it rose by 6.18%.

Industry leaders like Walmart, PepsiCo, Johnson & Johnson, and others also often see stock price increases on ex-dividend dates.

Overall, the actual movement of stock prices on ex-dividend dates is determined by a combination of dividend amount, market sentiment, company performance, and other factors.

Is it more advantageous to buy after the ex-dividend date?

This question requires specific analysis and can be considered from three perspectives:

• The stock price performance before the ex-dividend date
• The historical pattern of stock price movements after dividends
• The company’s fundamentals and your investment horizon

First, understand two core concepts:

Ex-rights and ex-dividends—After a stock goes ex-dividend, its price temporarily drops, but as investors become optimistic about the company’s fundamentals and prospects, the stock price gradually recovers to pre-ex-dividend levels. This reflects investor confidence in the company’s future growth.

Ex-privilege and ex-dividends—If the stock price remains depressed long-term after the ex-dividend date and fails to recover to pre-dividend levels, it indicates investor concerns about the company’s outlook, possibly due to poor performance or changing market conditions.

Using the earlier example, if after the ex-dividend date, the stock price rises from $31 back to $35, it completes a “fill the rights and dividends” pattern; if not, it is a “discounted” scenario.

Whether buying on the ex-dividend date is wise depends on whether the company’s stock price before the ex-dividend date has already shown strength.

(1) Consideration of pre-ex-dividend stock price trend

If the stock price has already risen to a high level before the ex-dividend date, many investors tend to take profits early, especially those seeking to avoid personal income tax. Therefore, investors considering buying on the ex-dividend date may face risks, as the stock price might already incorporate excessive expectations or face selling pressure.

(2) Historical observation of post-dividend stock price movements

Historically, stocks tend to decline after the ex-dividend date rather than rise. This is unfavorable for short-term traders, as buying after the ex-dividend date carries higher risk of loss, making pre-dividend purchase more attractive.

However, if the stock price continues to decline after the ex-dividend date until reaching technical support levels and stabilizes, it might be a good entry point.

(3) For fundamentally solid companies and long-term holding

For companies with strong fundamentals and industry leadership, dividends are more a normal adjustment rather than a sign of value loss. In fact, the ex-dividend period can offer investors a chance to acquire quality assets at a more attractive price. For such companies, buying after the ex-dividend date and holding long-term is often more profitable because the intrinsic value remains intact, and the price correction makes the stock more appealing.

What are the hidden costs of participating in ex-dividend stocks?

Tax implications on dividends

If purchasing ex-dividend stocks within tax-advantaged accounts (such as IRAs or 401(k)s in the US), there is no immediate tax upon withdrawal.

If using taxable accounts, buying at $35 before the ex-dividend date and the stock drops to $31 on the ex-dividend date, investors face unrealized capital losses and must pay tax on the $4 dividend. However, if investors reinvest the dividends and expect the stock price to rebound quickly, buying before the ex-dividend date can be meaningful.

Transaction fees and trading taxes

In addition to taxes, buying and selling stocks involve transaction fees and taxes. For example, in Taiwan stock market:

Brokerage fee = Stock price × 0.1425% × broker discount (usually 50-60%)

Trading tax varies by stock type:

• Common stocks: 0.3%
• ETFs: 0.1%

Trading tax = Stock price × Tax rate

Summary

The stock price performance of dividend stocks on the ex-dividend date is influenced by multiple factors. Investors should consider dividend size, market sentiment, company performance, and their own investment goals and risk tolerance to make rational decisions. In short, for stable, industry-leading companies, buying before the ex-dividend date after a price dip often offers better value than buying earlier.