The Dividend Effect: What Happens to Stock Prices Post-Payout?
The myths and truths of post-dividend stock performance—spoiler: it’s not what you think.
A warm hello to all new readers! I’m glad you are on board.
New here? I’m Michael and on a mission to make beating the stock market as easy for you as choosing your favorite ice cream. I write an algorithm that does exactly that.
How it all started. The journey so far.
Not all dips are what they seem.
When it comes to dividends, the real story starts after payout.
You’ve probably heard it a hundred times: “Stock prices drop after dividends are paid out.” The logic seems airtight, right? You’ll hear things like, “The company’s worth less now,” or, “Investors grab their dividends and then bail.”
It sounds convincing enough, but is it really true? Or is it just another investing myth that gets passed around and refuses to die?
So I sat behind my desk, cracked my knuckles and dug into all the stock data I could get my hands on, and went back to 1999.
Why 1999? I like the number, and 25 years seems reasonable to gauge enough data.
The mission was clear. Find out what happens to stock prices after those dividend checks are made. Roger that.
I looked at five different periods:
1 day
7 days
30 days
90 days
180 days, and
360 days after the payout
No specific sectors or industries here—we’re interested in big picture stuff. What’s the market as a whole doing? Is it riding the wave up, or coasting down?
Cue the drumroll…
Here’s what I found.
I have to admit, I was a bit surprised. On average, dividend-paying stocks didn’t just hold steady—they actually appreciated by 7.05% after dividends were paid, plus the dividend itself.
That’s right, on average, dividend-paying stocks were climbing, not tanking.
Of course, it’s not all sunshine and rainbows. There are definitely companies where you see a price dip post-dividend. But guess what? There are at least a bit more, where the opposite happens. Stocks go up, and investors who hang tight and can do nothing can enjoy both their dividends and the appreciation without much in and out.
So there you have it. A short and rough but interesting look at what’s really going on out there.
Turns out, the stock market always has a few surprises up its sleeve!
Which brings me to my last week.
The Progress
My day-to-day calculation code is working overtime, and let me tell you—it’s looking wonderful. Spoiler alert: Over the past 26 years, my strategy would have now outperformed the market (yep, even the mighty S&P 500 Total Return) every single time. Mic drop. And the best thing is, I just optimized a different day and the whole model performance got better over the whole circle, with the same settings.
To say I’m thrilled and relieved would be an understatement. I’ve poured a ridiculous amount of time and energy into this project, so seeing these results feels like hitting the final jackpot. All the work I’ve done before was to write the code and test it in one specific time window. To see now that it works in all time windows makes my eyes moist.
No, and as expected, it’s not a straight line to success and here is why. The market throws different opportunities at us every day, and how they play out depends on a mix of factors. The results show that the market follows certain patterns—sometimes they’re crystal clear, other times they’re a bit more elusive, and there are always surprises.
But.
Time in the market is always your best friend.
And here’s the thing: regardless of who’s analyzing the stocks or making the investments, there’s always some remaining risk. It’s that inherent uncertainty no investor can completely avoid because it’s part of the game.
The best part? Shameless self-promotion starts - now. It’s a massive time safer. You do the work once-a-year, set things up, and then for the rest of the year, you can sit back and live your life while our strategy does the heavy lifting. Self-promotion off.
I’ll be sharing more details in the coming weeks because there’s still a ton to calculate. I want to make sure I’ve got the full picture before we pop the champagne.
Right now, I’m crunching the numbers on the $500k per day liquidity strategy. I guess it will take roughly two weeks.
A brief reminder on: Why is liquidity important?
The Plan
Next up are the $2 million and $4 million per day liquidity strategies. I want to think about how I can continue to improve the code in terms of computing speed.
What’s on my head
Last week I told you that I’m re-listening Viktor E. Frankls book Men’s Search for Meaning.
Eric from The Merciless Trade recommend The Choice by Edith Eger, and what shall I say? I bought it and started it. Even though I haven't finished it yet, I can highly recommend it because even in the introduction there are already golden nuggets and gems.
The Nugget
This should be your next book too: The Choice by Edith Eger (no affiliate link)
Hit that heart if you love dividend stocks!
Michael
Recommend The Economy Rocket to your readers and friends
I share my stock investment story without sugarcoating – you get the good, the bad, and those tricky ego trips. I'm developing a service with a mix of smart code and proven investment strategies, making stock analysis a thing of the past if you wish. Why? Because life offers so much more beyond the confines of stock analysis.
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.