When it comes to traditional blue-chip dividend investing, income driven investors are looking for solid yields with regular (monthly, quarterly, etc.) dividend distributions. In the case of the two companies featured, there were three criteria I chose to use in my screen:
- Each Company Must Be Going Ex-Dividend on Oct. 9th
- Each Company Must Be Have a P/E Ratio Under 16
- Each Company Must Yield At Least 1.50%.
It should be noted that many income-based investors use a strategy involving purchasing shares on or before the company's ex-dividend date. 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. I wanted to not only consider these companies from an ex-dividend perspective, but demonstrate how both companies also outpace their competition in terms of profit margin.
Aetna (NYSE:AET), which closed trading on Monday at $42.08/share, will be going ex-dividend at the close of trading on Tuesday, October 9. "The Hartford, Connecticut-based firm, which currently yields 1.70% ($0.70), operates as a diversified health care benefits company in the United States. The company operates in three segments: Health Care, Group Insurance, and Large Case Pensions." (Profile: Yahoo! Finance)
In terms of AET, there is one primary catalyst that potential income investors should find attractive and that is the company's profit margin when compared to some of its direct industry competitors. In the last 12 months, AET has demonstrated a profit margin of 5.26%, whereas Cigna (NYSE:CI) has only managed to demonstrate a profit margin of 5.03%. Aetna's profit margin is nearly 1.05 times that of Cigna's, which in my opinion is pretty impressive.
Covidien, PLC (NYSE:COV), which closed trading on Monday at $59.79/share, will be going ex-dividend at the close of trading on Tuesday, October 9. The Dublin, Ireland-based firm, "which currently yields 1.70% ($1.04), develops, manufactures, and sells healthcare products for use in clinical and home settings in the United States and internationally. Its Medical Devices segment offers endo-mechanical instruments, such as laparoscopic instruments and surgical staplers; energy devices, which include vessel sealing, electrosurgical, and ablation products and related capital equipment; and soft tissue repair products comprising sutures, mesh, bio-surgery products, and hernia mechanical devices." (Profile: Yahoo! Finance)
When it comes to COV, potential investors should consider the company's profit margin when compared to some of its industry competitors and how the company outpaces those competitors. In the last 12 months, COV has demonstrated a profit margin of 15.89%, whereas Becton, Dickinson and Company (NYSE:BDX) has only managed to demonstrate a profit margin of 14.81%. Covidien's profit margin is nearly 1.07 times that of Becton, Dickinson and Company, which in my opinion is a pretty attractive catalyst moving forward.
Potential investors looking to establish a position in either AET or COV should do so with a small to moderate position and add to that position as dividend announcements approach. Although the primary attraction comes in the form of the dividend yield for both companies, one of the more important secondary catalysts to consider is clearly the profit margins of each company over the last 12 months (and how it outpaces the competition).