What Happened to Insurance Australia Group Ltd’s Share Price?
Shares in the nation’s largest insurer to small and medium businesses Insurance Australia Group Ltd [ASX:IAG] took a beating today, with the stock shedding nearly 5% of its value. Today’s price action trimmed IAG’s year-to-date capital growth to less than 6%.
Why Did This Happen to Insurance Australia Group Shares?
Today IAG traded ‘ex-dividend’. That means that if you wanted to get your hands on the 26 cent franked dividend that the company will pay out in a few weeks, you needed to hold the shares as of Friday afternoon.
A company’s stock price usually drops by the value of its dividend on the ex-dividend date…give or take a few cents. That’s why market observers expected IAG shares to go down by around 26 cents today. So why did IAG drop by as much as 38 cents during the day?
This looks like a classic case of yield-hungry investors bidding a share price up by an abnormal amount in the weeks leading up to its ex-dividend date…only to sell their shares as soon as they’ve qualified to receive the dividend.
That’s what I see when I look at the price action between the company’s solid full-year result in mid-August and today.
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Every stock attracts investors with a different mix of preferences and styles, and that mix can change over time. It looks like IAG just got a little too heavy with income-focused investors over the past few weeks.
What Now for Insurance Australia Group Ltd?
IAG remains one of Australia’s strongest insurance groups. Its brands, which include CGU and NRMA, are successful…and the company’s profit margins on insurance premiums are hitting record highs.
While some investors seem to view this as ‘as good as it gets’, and a reason to sell the stock…today’s larger-than expected pullback could represent an opportunity to buy into a good operator at a more reasonable price.
Cheers, Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator
Join Money Morning on Google+
The post Why the Insurance Australia Group Ltd Share Price Sank Today appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
