## The Truth About Ex-Dividend Price Fluctuations: What Determines Whether Stocks Fall or Rise?

Many investors are troubled by one question—does the stock price always fall on the ex-dividend date? The answer might be surprising. While theoretically, dividends should lead to an adjustment in stock price, in reality, the performance of stocks on ex-dividend days is far more complex than imagined.

Warren Buffett allocates over 50% of his assets to high-dividend stocks, reflecting an important fact: companies that pay stable dividends often represent solid business models and healthy cash flows. In recent years, more and more investors have adopted high-dividend stocks as core holdings to obtain steady income. But while enjoying dividends, it’s also essential to understand the underlying logic behind ex-dividend stock price movements.

## Why Do Ex-Dividend Stock Prices Adjust? From Theory to Reality

**Theoretical Price Adjustment**

On the ex-dividend date, the company pays cash dividends to shareholders, which results in a cash outflow and a decrease in the company's assets. Correspondingly, the value per share also declines. For example, consider a fictional company with a previous closing price of $35 per share, including $5 in idle cash per share. If the company decides to distribute a special dividend of $4 per share, the theoretical stock price on the ex-dividend date should be $31.

Similarly, if stock rights issues are involved, the calculation is: **Post-issue stock price = (Pre-issue stock price - issue price) / (1 + issue ratio)**. For instance, if a stock originally trades at $10 per share, with an issue price of $5, and a ratio of 2-for-1, the post-issue price would be approximately $1.67.

**Complex Reality**

However, reality is far from this simple. Historical data shows that ex-dividend stock prices can both fall and rise. This is because stock price fluctuations are influenced by multiple factors—market sentiment, company performance, industry outlook, and more—where dividend adjustment is just one variable.

Take Coca-Cola as an example, which has a long history of paying dividends quarterly. On most ex-dividend dates, its stock price dips slightly, but there have also been many instances of small increases. Apple Inc. is even more obvious; due to the continued popularity of tech stocks, Apple often shows an upward trend on ex-dividend days. On the ex-dividend date of November 10, 2023, Apple’s stock price rose from $182 to $186. Similarly, leading stocks like Walmart, PepsiCo, and Johnson & Johnson often see their prices rise on ex-dividend days.

## Fill-Right and贴-Right: Key Indicators for Timing Your Purchase

To judge the future movement of ex-dividend stock prices, two important concepts must be understood:

**Fill-Right (填權息)** — After the ex-dividend date, although the stock price temporarily drops due to dividend payment, investor optimism about the company's fundamentals and future prospects causes the stock price to gradually recover to or near pre-dividend levels. This indicates market confidence in the company's growth outlook.

**贴-Right (貼權息)** — After the ex-dividend date, the stock price remains depressed for a period and fails to recover to pre-dividend levels. This usually reflects investor concerns about the company's future performance, possibly due to poor earnings or changing market conditions.

## When Is the Best Time to Buy Ex-Dividend Stocks? Three Critical Perspectives

**(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 choose to realize profits early, especially those seeking to avoid tax burdens. Buying at this point involves higher risk—prices may already include excessive expectations and could face selling pressure. Therefore, buying at a high price before the ex-dividend date is generally not advisable.

**(2) Historical Trading Patterns**

Historical observations suggest that stock prices tend to decline after the ex-dividend date. For short-term traders, buying around the ex-dividend date carries higher risk. However, when the stock price falls to a technical support level and shows signs of stabilization, it may present a more attractive buying opportunity.

**(3) Company Fundamentals and Long-Term Strategy**

For companies with solid fundamentals and industry-leading positions, dividends should be viewed as a price adjustment rather than a reduction in value. For such quality companies, the decline in stock price after the ex-dividend date can provide an opportunity to buy at a more favorable price. If an investor plans to hold long-term, buying after the ex-dividend date is often a more cost-effective strategy, as the intrinsic value of the company remains unchanged, and the price decline makes the stock more attractive.

## Hidden Costs That Cannot Be Ignored

**Dividend Tax Costs**

Purchasing ex-dividend stocks in tax-advantaged accounts (such as US IRAs or 401(k)s) can avoid tax issues. But in regular taxable accounts, attention is needed—if you buy at $35 before the ex-dividend date and the stock drops to $31 on the ex-dividend day, you face an unrealized capital loss and must pay taxes on the $4 dividend. Buying before the ex-dividend date only makes sense if dividends are reinvested and the stock price is expected to recover quickly.

**Transaction Costs**

Transaction costs vary across markets. For example, in Taiwan’s stock market:
- **Brokerage fee**: Stock price × 0.1425% × broker discount rate (usually 50-60%)
- **Transaction tax**: 0.3% for regular stocks, 0.1% for ETFs

Though these costs seem small, they can significantly impact net returns when accumulated.

## Rational Investment Decision-Making

The ultimate performance of ex-dividend stock prices depends on the combined effect of multiple factors. Investors should consider the stock’s pre-dividend performance, historical post-dividend trends, company fundamentals, and their own investment goals and risk tolerance to make rational decisions. High-dividend stocks are not just about dividend income; more importantly, they require identifying the best entry points for investment.