The truth about high-dividend stocks: Will the stock price drop after the ex-dividend date? How to seize the benefits of dividends?

What Does Stable Dividend Payouts Signify

A company that can maintain a stable dividend payout policy over many years typically indicates that its business model has been validated by the market, with ample and healthy cash flow. Historically, top-performing listed companies almost always have a solid tradition of dividend payments. In recent years, investor attention to high-dividend assets has been steadily increasing, with many institutions and individual investors viewing them as a key pillar in their portfolios. Renowned investors are particularly fond of such stocks, often allocating more than half of their assets to high-dividend stocks.

However, novice investors are often troubled by two core questions: Will the stock price necessarily drop on the ex-dividend date? Should I buy before or after the ex-dividend date? Understanding the answers to these questions is crucial for maximizing benefits from dividend payouts.

Stock Price Movements on the Ex-Dividend Date Are Not Absolute Rules

Common understanding suggests that on the ex-dividend date, since shareholders have already received the dividend rights, the stock’s value should decrease accordingly, leading to a drop in stock price. However, historical trading data shows that stock prices do not always fall on the ex-dividend date. Especially for industry leaders with a good dividend record, steady performance, and market favor, it is common to see stock prices rise on the ex-dividend date.

To understand this phenomenon, it’s important to grasp the mechanisms of rights issuance and dividend distribution:

Rights Issue: When a company issues bonus shares or rights, leading to an increase in share capital. Under the premise of a constant total market value, the value per share decreases, and a downward adjustment of the stock price is inevitable.

Dividend Payment: When a company distributes cash dividends, directly reducing its assets. Although shareholders receive cash income, the stock price typically adjusts downward accordingly.

Example Demonstration

Suppose a company earns $3 per share annually. Based on industry valuation and business characteristics, the market evaluates it at a P/E ratio of 10, so the stock price is $30.

The company has a history of profits and accumulated cash reserves on its balance sheet. Assume this idle cash amounts to $5 per share, making the overall valuation $35 per share.

The company considers that holding too much cash is inefficient and decides to pay a special dividend of $4 per share, retaining $1 for future needs. The dividend is announced on June 17, 2025, with the record date on June 15.

According to exchange rules, the ex-dividend date usually coincides with the record date. Theoretically, the stock price on the ex-dividend date should be the previous day’s closing price minus the dividend amount. By this calculation, the price would adjust from $35 to $31.

In the case of a rights issue, 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 before rights issue, with a rights issue price of $5, and a rights ratio of 2:1 (holding 2 shares entitles you to 1 new share), then: Post-rights stock price = ($10 – $5) ÷ (1 + 0.5) = $5 ÷ 1.5 ≈ $3.33

( Stock price fluctuations are complex

Although it is common for stock prices to decline on the ex-dividend date, it is not always the case. Reviewing historical trends, stock prices after rights and dividends can go up or down. This is because price movements are influenced by multiple factors and are not solely driven by rights and dividends. Market sentiment, company performance, and macroeconomic conditions all have substantial impacts.

For example, Coca-Cola has a long tradition of quarterly dividends. Most of the time, its stock price dips slightly on the ex-dividend date, but there are also many instances of price increases contrary to expectations. Data from recent years shows that on September 14, 2023, and November 30, 2023, Coca-Cola’s stock prices slightly rose on ex-dividend dates, while on June 13, 2025, and March 14, 2025, they slightly declined.

Apple Inc. is even more representative. The stock also pays quarterly dividends, and in recent years, driven by the popularity of tech stocks, it often saw significant increases on ex-dividend dates. For example, on November 10, 2023, the ex-dividend date, Apple’s stock rose from $182 to $186; on May 12, it increased by 6.18%.

Industry giants like Walmart, Pepsi, Johnson & Johnson, and others also often see stock price gains on ex-dividend days.

In summary, the direction of stock price movement on ex-dividend dates is jointly determined by dividend size, market sentiment, and company performance.

Three Perspectives to Capitalize on the Benefits of Dividends

Whether buying stocks after dividends is worthwhile depends on three considerations. First, understand these two key concepts:

Fill-Back of Rights and Dividends: Although stock prices may temporarily decline due to dividend distribution, if investors are optimistic about the company’s prospects, the stock price may gradually recover to pre-dividend levels or close to them. This reflects market confidence in the company’s future growth.

Persistence of Price Decline (貼權息): If, after the ex-dividend date, the stock price remains sluggish and fails to recover to pre-dividend levels, it usually indicates investor doubts about the stock’s outlook, possibly due to poor management or market changes.

Using the earlier example of a $35 stock, if after the ex-dividend date, the stock price recovers to $35, it is considered a fill-back; if it remains below, it is a persistent decline.

( Perspective 1: Stock Price Before the Ex-Dividend Date

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. New buyers at this point face selling pressure, and the stock price may already include over-optimistic expectations. Therefore, buying near the ex-dividend date may not be wise.

) Perspective 2: Historical Price Trends

Historically, stocks tend to decline more often than rise after the ex-dividend date. This poses a challenge for short-term traders, as the risk of loss after buying is relatively high, making it less economical to establish positions around the ex-dividend date.

However, if the stock price continues to fall to a technical support level and shows signs of stabilization, it could present a better buying opportunity.

( Perspective 3: Company Fundamentals and Long-Term Strategy

For fundamentally solid companies with industry-leading positions, dividends are more of a technical adjustment rather than a decline in intrinsic value. In fact, it can be an opportunity for investors to acquire quality assets at a more favorable price. Buying such stocks after the ex-dividend date and holding long-term is often more advantageous because the intrinsic value remains intact, and the price correction increases attractiveness.

Hidden Costs of Participating in High-Dividend Strategies

) Tax Considerations on Dividends

If purchasing ex-dividend stocks through tax-advantaged accounts (like retirement accounts), no taxes are payable before withdrawal. However, in regular taxable accounts, different rules apply.

Using the earlier example of a $35 stock, if an investor buys at $35 before the ex-dividend date, and the stock drops to $31 on the ex-dividend date, this results in an unrealized capital loss, but the $4 dividend is taxable.

If the investor reinvests the dividends into the company’s stock and expects the price to recover quickly, buying before the ex-dividend date can still be meaningful.

Transaction Costs Analysis

Besides dividend taxes, transaction fees should also be considered. For example, in Taiwan’s stock market:

Commission fee calculation: Stock price × 0.1425% × brokerage discount rate (usually 50-60%)

Transaction tax rates vary by stock type:

• Common stocks: 0.3%
• ETFs: 0.1%

Transaction tax calculation: Sale price × applicable tax rate

These costs accumulate and can significantly impact overall returns.

Making Rational Investment Decisions to Maximize Dividends

The performance of dividend-paying stocks on ex-dividend day is influenced by multiple factors. Investors should weigh these factors comprehensively, aligning with their investment goals and risk tolerance.

The key to benefiting from dividends lies in: understanding the true drivers of stock price changes, recognizing that price drops on the ex-dividend date are not always inevitable, selecting fundamentally sound companies for long-term holdings, and being aware of short-term tax and transaction costs. Only then can investors truly harvest stable income from high-dividend strategies.