One of the most important variables income investors consider when developing a dividend based strategy is the trading of shares at or near a company's ex-dividend date. According to Investopedia, "on the ex-dividend date the person who owns the security will be awarded the payment, regardless of who currently holds the stock." After the ex-date has been declared, the stock will usually drop in price by the amount of the expected dividend. That said there are two companies that will be going ex-dividend on August 29 income driven investors should consider.
Allstate (ALL), which closed trading on Tuesday at $37.50/share will be going ex-dividend at the close of trading on Wednesday, August 29. The Northbrook, Illinois-based firm, which currently yields 2.30% ($0.88), through its subsidiaries, engages in the personal property and casualty insurance, life insurance, and retirement and investment products business primarily in the United States. Its Allstate Protection segment sells private passenger auto and homeowner's insurance products to individuals under the Allstate, Encompass, and Esurance names through agencies, as well as directly through call centers and the Internet.
I think the one of the key long-term catalysts for ALL is going to be margins and how they outpace some of the competition within the insurance sector. Over the last 12 months, ALL has demonstrated a profit margin of 6.27% and an operating margin of 10.19%, whereas Progressive (PGR) has only managed to demonstrate a profit margin of 4.93% and an operating margin of 7.99%.
SunTrust Banks, Inc. (STI), which closed trading on Tuesday at $24.79/share will be going ex-dividend at the close of trading on Wednesday, August 29. The Atlanta, Georgia-based firm, which currently yields 0.80% ($0.20), operates as the holding company for SunTrust Bank, which provides various financial services in the United States. The company's Retail Banking segment offers consumer deposits, home equity lines, consumer lines, indirect auto, student lending, bank card and other consumer loan and fee-based products. Its Diversified Commercial Banking segment provides commercial lending, financial risk management, capital raising, commercial card, and other treasury and payment solutions; insurance premium financing; and equipment and lease financing.
I think the one of the key catalysts for long-term investors looking to establish a position in STI is going to be the company's margins and how they outpace some of the competition within the financial services sector, and more specifically how they outpace some the larger banks. Over the last 12 months STI has demonstrated a profit margin of 11.16% and an operating margin of 22.57%, whereas Deutsche Bank (DB) has only managed to demonstrate a profit margin of 9.78% and an operating margin of 17.84%.
Potential investors looking to establish a position in either ALL or STI should do so with a small to moderate position and add to that position as dividend and earnings announcements approach. Although all both companies currently have very conservative yields (ALL 2.30% and STI 0.80%), potential investors should keep a close watch on how the Federal Reserve handles interest rates over the next 12-24 months, and if and when they implement another round of quantitative easing.