Strota Research

Buying a share for its dividend? On the biggest payouts, ₹1 lakh lost ₹2,196 after tax

By Strota Newsroom · 2026-11-02 · How Strota reports

dividendsex-dividend datedividend captureNifty 500tax on dividends

We tested 5,335 dividends since 2016. The share price fell by about 80% of the payout on the ex-date, and trading costs and tax turned what was left into a loss.

Buying a share the evening before it goes ex-dividend, pocketing the payout and selling the next day sounds like free money, but across 5,335 dividends since 2016 the trade lost 0.04% on average once trading costs were paid. There was not much to play with in the first place, because the typical single dividend was only 0.56% of the share price. Larger payouts left a little more: for a dividend of 1% to 2% of the price, ₹1 lakh collected about ₹1,392, but the price fell about ₹1,082 and costs took ₹250, leaving roughly ₹60. After 30% tax on the dividend, that same trade ended about ₹358 in the red.

What happens to a share price on the ex-dividend date

The ex-dividend date is the first day a share trades without the right to the coming dividend, so the last chance to buy and still get paid is the session before it. Textbooks say the price should drop by the full payout that day, since the cash is leaving the company.

The study measured the drop as a share of the dividend, and the two readings below are the same measure. At the opening bell the median fall was 0.20 of the dividend, but by the close it had reached 0.81 of it, which is the same thing as 81%. So most of the fall happened during trading hours rather than overnight, and a seller who waited until the close gave back most of the payout.

Before any costs, the trade earned 0.21% on average and made money 54.2% of the time, only slightly better than a coin toss. With a typical dividend that small, the part the price did not take back left very little room for anything else.

Trading costs and tax wipe out the gain

Every delivery trade carries charges even with a zero-brokerage broker. The test put the round trip at 0.25%, made up of securities transaction tax of 0.1% on both the buy and the sell, plus exchange fees, stamp duty and GST. Once those were paid, the average result turned into a loss of 0.04%, and the share of winning trades fell to 47.7%.

A dividend also counts as income, and the study taxed it at 30%, the top slab, without letting the price loss reduce any other gains you might have. On that basis the trade lost 0.32% on average and made money only 41.1% of the time. Investors who can set the capital loss against other gains would see a smaller after-tax hit, so this is the harsher version of the sum.

The study also checked whether the trade did better than the market on the same day. Measured against the Nifty 500's move on the ex-date, the trade after costs averaged -0.017%, which is no different from zero once chance is allowed for. Once the whole market's move is taken out, there was no hidden edge left over.

Do bigger dividends make the trade work?

Bigger payouts did a little better after costs, but tax reversed that. For dividends worth 1% to 2% of the price, the trade averaged +0.06% after costs and -0.36% after tax. Dividends of 2% to 5% did better after costs, at +0.13%, yet lost more once tax was counted, at -0.75%, because the tax bill grows with the size of the payout.

For the 84 dividends above 5% of the share price, the median price fall was 1.01 of the dividend, so in the typical case the price gave back the whole payout. The rupee figures for this group are averages rather than the median case, which is why both can hold: on ₹1 lakh, the average dividend paid about ₹6,817 and the average price fall was about ₹6,718. That left a loss of about ₹151 after costs and about ₹2,196 after tax.

Which stocks were tested, and what was left out

The data covers every cash dividend paid by today's Nifty 500 companies with an ex-date between January 2016 and October 2026, which came to 434 stocks. Companies that dropped out of the index along the way are not in the sample, so the picture leans towards firms that survived. Prices came from Yahoo Finance and dividend records from the NSE.

Across those dividends, the market marked the share down by most of the payout on the day it was detached, and after 30% tax only 41.1% of the one-day trades made any money.

Frequently asked questions

Is buying shares before the ex-dividend date profitable in India?

In a test of 5,335 dividends on today's Nifty 500 stocks since 2016, buying the session before the ex-date and selling on the ex-date lost 0.04% on average after trading costs. After 30% tax on the dividend, the average loss was 0.32%.

Does a share price fall by the dividend amount on the ex-date?

By the ex-date close the median fall was 81% of the dividend, and for dividends above 5% of the share price the median fall was the whole amount. At the open the median fall was only 0.20 of the dividend.

Does a bigger dividend make dividend capture worthwhile?

Not once tax is counted. Dividends of 2% to 5% of the price averaged +0.13% after costs but -0.75% after tax, and the 84 dividends above 5% lost 0.15% after costs and 2.20% after tax on average.

Sources and method

This note is based on Strota's own backtest research. Historical results are not forecasts or investment advice; see the editorial standards for methodology and limitations.