Greed and fear are said to be the sentiments that drive stock markets up or down, so investors should not be surprised when we enjoy — or suffer — extremes of emotion. Some days, when things are going well, we may struggle to avoid smugness, but on others the best we can do is to grip the desk tightly and try not to cry.
Greene King, one of Britain’s biggest brewers, has put me through the highs and lows of shareholding in the space of little more than six months. As reported here in April, I thought the doom and gloom over pub closures and a possible dividend cut were overdone.
So I popped Greene King in my Isa at 468p a share, utilising the full annual Isa allowance and some cash that had built up in this account. Tax-free income was a big attraction, with the brewer’s dividends expressed as a percentage of its share price offering a yield of 7%.
Then, the day after I invested, it issued a statement describing its dividend as “sustainable”. That caused the share price to rise 14% and brokers began to tip this income stock. By late June the price had hit 642p.
Your humble correspondent was beginning to feel like he had enjoyed several pints of Greene King’s beers on an empty tummy. However, euphoria often ends in a headache — or so I am told — and broker sentiment soon turned against this stock, suggesting it was a value trap where the price of a high income today would be capital erosion tomorrow.
So it has proved in the short term. The share price fell back to 494p last Monday, when — ever the contrarian — I topped up my holding again.
That was largely funded by the four- figure, tax-free dividends I received from Greene King in September — an income that also illustrates the value of utilising your Isa allowance at the start of the financial year, rather than waiting until the end, as most folk do.
While the dividend now looks more vulnerable than it did when I made my share purchase — because the longstanding chief executive has announced he is stepping down and his successor may be less committed to maintaining payouts — the shares remain priced at less than eight times earnings. A running yield of 6.7% pays shareholders to be patient and to hope this £1.5bn business can withstand Brexit, a higher minimum wage and other reasons to be fearful.
Put another way, I bet this Suffolk brewer, founded in 1799, will still be making beer long after I have gone — which makes it a good fit for my “forever” fund.
If only I could express similar confidence about shares I bought in another British business, albeit a very different one. Versarien, a technology tiddler, claims to be on the verge of commercialising the wonder material graphene.
Shares in the Cheltenham-based business got smashed in the wipe-out on AIM, the junior stock market, last month. The price collapsed from the 177p I paid just before the AIM meltdown in “red October” to trade at 125p last week. Ouch!
I don’t think I have ever bought a share that qualified so quickly for inclusion in “Cowie’s clangers”. This should teach me to beware of “story stocks”, where an exciting narrative may obscure a valuation basis that is all hope and no profits.
Thank heavens for diversification and a 50-stock portfolio. I risked just 1% of my assets on Versarien, so it is not too painful to hang on and hope that its recent recovery, from a low of 104p in October, continues.
Elsewhere among the British shares in my global portfolio, RPC Group, a Northamptonshire-based plastics producer, seems to be a bit of a pariah on worries about pollution. Never mind that it does not make plastic bags or straws, this business has still got caught up in the hue and cry about rubbish in the ocean. More pertinently, however, RPC has raised its dividends for 25 years in a row, yields 3.5% and trades on 11 times earnings at 788p — compared to the 672p I paid in June.
Meanwhile, the funeral provider Dignity, based in the West Midlands, fell 7% last Monday on fears of further regulatory intervention and the impact of a price war on profits. Having paid £7.52 in February after the price collapsed from £23 a year ago, I intend to remain philosophical about its current price of £10.02.
That’s less than eight times earnings from a business that is based on death — one of life’s few certainties. A yield of nearly 2.5% is another reason to hope the funeral provider can continue its corporate resurrection.
Morbid anxiety dominates the sentiment of many institutional investors towards most British shares. According to a Bank of America survey of international fund managers last week, the UK is the least popular market in the world.
However, the short-termism of professional investors may create long-term opportunities for individual investors, who do not have to answer to a board of directors every three months. Extreme uncertainty about the outcome of Brexit has pushed shares in British businesses into the bargain basement and it may be months or years before we know if they offer good value at those prices or are cheap for a reason.
Here and now, contemplating my winners and losers, I can take comfort from the stock market adage that it sometimes pays to be greedy when others are fearful.
If you’re after income, dial V for Vodafone
Never mind the geopolitical or macroeconomic uncertainty, it is the success or failure of individual businesses that determines returns to shareholders. Surprisingly good numbers last week from Vodafone remind us of this.
The telecoms company is particularly important to income-seeking investors and pension funds, for whom dividends are a priority. Vodafone, which I have held for more than a decade, delivers about £1 in every £14 distributed by all UK-listed companies.
Sad to say, investors have suffered shocking capital erosion in order to obtain an income yield of 8.8%. The share price has shrunk by nearly a third over the past year on fears that Vodafone has run up too much debt and will pay too much to upgrade broadband.
While expenditure on mobiles has increased massively, telecoms companies lack pricing power. Most consumers just buy the cheapest deal.
Fortunately, newish chief executive Nick Read got a good reception last week for plans to cut costs and maintain the dividend. The share price jumped 7% on the news.
George Salmon, equity analyst at wealth manager Hargreaves Lansdown, pointed out: “Not only should Read’s plans open the door to cost savings, a sale of the mobile masts or towers business could see a couple of billion pounds flow into the coffers.”
Helal Miah, an analyst at the Share Centre, added: “After a terrible share price performance since the start of the year, Vodafone is attractive for investors seeking income.”
Priced at 15 times earnings, in what should be an industry of the future, that’s good enough to keep this shareholder hanging on the line.