How long should you wait to sell after the dividend is paid? Understand the stock price logic before and after the ex-dividend date.

Many investors have a special fondness for high-dividend stocks, and the reason is simple—if a company can consistently pay dividends year after year, it usually indicates healthy cash flow and a solid business model. Warren Buffett himself is a vivid example; over 50% of his portfolio is allocated to high-dividend stocks. However, novice investors are often stuck on two core questions: Will the stock price definitely drop on the ex-dividend date? How long should I hold before selling after entering?

How the Dividend Mechanism Affects Stock Prices: Understanding the Logic First

When it comes to dividends, many people instinctively believe that stock prices will necessarily fall. But this idea needs correction.

When a company goes ex-dividend, theoretically, the stock price should be adjusted downward by the amount of the dividend. For example, suppose a stock is trading at $35 per share, which includes $5 of excess cash. The company decides to distribute a special dividend of $4 per share, leaving only $1 in cash reserves. On the ex-dividend date, the stock’s theoretical price should adjust from $35 to $31.

This is a mathematical inevitability. But in reality, things are often more complex.

Stock Price Movements: Drops Are Not Absolute; Rises Are Not Rare

Looking at historical data, the performance of stock prices on the ex-dividend date varies widely. Take Coca-Cola as an example; the company pays dividends quarterly, and on most ex-dividend dates, the stock experiences a slight decline. However, on the ex-dividend dates of September 14, 2023, and November 30, 2023, the stock price actually rose slightly.

Apple’s situation is even more interesting. Due to continued enthusiasm for tech stocks, Apple often moves against the trend on ex-dividend dates. On November 10, 2023, the ex-dividend date, Apple’s stock rose from $182 to $186; earlier, on May 12, 2023, it increased by 6.18%.

Why such differences? Because stock price movements are influenced by multiple factors—market sentiment, company performance, overall market trends, etc. The dividend itself is just one factor, not the decisive one.

Fill-Right vs.贴权息 (Price Recovery vs. Price Lag): Key Concepts for Judging Buying and Selling Timing

Investors must understand two concepts:

Fill-Right (填權息): After the ex-dividend date, although the stock price temporarily drops, as investors remain optimistic about the company’s prospects, the stock gradually recovers to pre-dividend levels. This signals that the market is optimistic about the company’s future growth.

Price Lag (貼權息): After the ex-dividend, the stock’s price remains depressed over the long term and fails to recover to pre-dividend levels. This usually reflects investor concerns about the company’s performance or market outlook.

Returning to the earlier example, if the stock price rises from $31 back to $35 after the ex-dividend, that’s a fill-right; if it doesn’t, that’s a price lag.

How Long After the Ex-Dividend Date Is It Worth Selling? Three Major Perspectives

First Perspective: Stock Price Performance Before the Ex-Dividend Date

If the stock has already risen to a high level before the ex-dividend date, many investors tend to take profits early, especially those seeking tax advantages. If you want to buy in at this point, be aware that the stock price may have already priced in the dividend expectation, increasing the risk of a correction.

Second Perspective: Historical Post-Dividend Trends

Statistically, stocks tend to decline more often than rise after the ex-dividend date. Short-term traders should note that the probability of incurring losses after buying is relatively high. However, if the stock price hits a technical support level and shows signs of stabilization, that may be a better entry point.

Third Perspective: Company Fundamentals and Holding Period

For companies with solid fundamentals and industry-leading positions, the ex-dividend adjustment is more of a technical correction rather than a reduction in value. Conversely, it can be an opportunity for investors to buy quality assets at a more favorable price.

The decision logic here is: Long-term holding of quality companies means that the price correction after the dividend is a buying signal. Since the intrinsic value of the company doesn’t decrease due to the dividend, the price drop is temporary. Investors with this view can consider gradually increasing their holdings within a few weeks after the ex-dividend date, rather than rushing to sell.

Hidden Costs Not to Be Ignored: Taxes and Transaction Fees

Dividend Income Tax

If you hold dividend-paying stocks in tax-advantaged accounts (like US IRAs, 401(k)s, etc.), you don’t need to worry about taxes, as withdrawals are tax-deferred.

But if you hold in a regular taxable account, things get complicated. Suppose you buy at $35 before the ex-dividend date, and on the ex-dividend day, the stock drops to $31. You face an unrealized capital loss of $4, and you also need to pay taxes on the $4 dividend. This tax burden can be significant, especially if the dividend is taxed at a high rate.

Transaction Fees and Trading Taxes

For example, in Taiwan’s stock market, the trading fee is calculated as: Stock Price × 0.1425% × brokerage discount rate (usually 50-60%)

Trading taxes vary by stock type:

• Ordinary stocks: 0.3%
• ETFs: 0.1%

The calculation is: Stock Price × Tax Rate

Though these costs seem small, they accumulate over time and can erode investment returns.

Recommended Holding Periods After the Ex-Dividend Date

Considering all the above factors, the timing for selling after the ex-dividend date should be thought through as follows:

Short-term traders: If your goal is to profit from price differences, it’s advisable to sell when technical rebound signals appear, typically within 1-4 weeks after the ex-dividend date. Keep a close eye on support and resistance levels.

Medium-term investors: If the company’s fundamentals are strong, consider holding for 6-12 months. This period is enough for the stock to complete the fill-right process and enjoy some subsequent upward movement.

Long-term investors: For high-quality high-dividend companies, the ex-dividend date is not a sell signal at all. Instead, it’s an opportunity to buy or add to your position. The holding period should be measured in years, and strategies shouldn’t be adjusted based on dividend fluctuations.

In summary, stock price performance on the ex-dividend date depends on multiple factors such as dividend amount, market sentiment, and company performance. Investors should formulate rational trading strategies before and after the ex-dividend date based on their investment goals, risk tolerance, and holding period, rather than reacting to short-term volatility.