In May, I wrote 39 articles for this website, my new monthly record for 2020-22. However, so far this month, I have written only nine pieces (10, including this one). The reason for my recent slowdown is I’ve been researching lots of stocks before buying new shares. Fool rules prohibit me from writing about stocks I’ve bought for a few days, which is why I haven’t mentioned Royal Mail (LSE: RMG) shares for a while.
I bought Royal Mail shares. They promptly fell, of course
Early this month, I urged my wife to buy some Royal Mail shares for our family portfolio. This she did and, somewhat predictably, the shares immediately nosedived. This pattern — buying just before price falls — has happened to me so often in 35 years of investing. Even so, it’s still disappointing to ‘press the button’, only to discover we’re losing money within days.
We invested in the stock of the 506-year-old provider of universal postal services at an all-in price (including stamp duty and transaction fees) of 273.2p a share on 29 June. The very next day, they promptly fell to an intra-day low of 257.43p, down almost 5.8% within 24 hours. (Honestly, this sort of move happens to me all the time when I decide to buy shares.)
The shares then bounced back
Twenty years ago, this sort of instant one-day loss — only on paper, admittedly — would have made me grumpy. However, age has somewhat mellowed me, so these days I just shrug. That’s because long experience has taught me that I’m not buying stocks to trade short-term upticks (or downticks). I aim to buy into companies whose current share prices — in my view — undervalue their future profits, earnings, and cash flows during my time of ownership. And I believe this to be the case for Royal Mail shares.
Here are Royal Mail’s current financials, based on the share price of 291.2p, as I write:
| Share price | 291.2p |
| 52-week high | 536.8p |
| 52-week low | 257.43p |
| 12-month change | -45.3% |
| Market value | £2.8bn |
| Price-to-earnings ratio | 4.7 |
| Earnings yield | 21.1% |
| Dividend yield | 5.7% |
| Dividend cover | 3.7 |
As you can see, Royal Mail shares are a long way from their 52-week high above 535p. Indeed, they’ve almost halved in value over the past 12 months. And that’s partly why I bought them just over three weeks ago, simply because they looked too cheap to me.
However, the above table includes trailing (backward-looking) figures — and I fully expect the group’s earnings to decline in 2022-23. After all, Royal Mail workers have already voted to strike over pay demands and this industrial action could escalate. Also, the chairman has threatened to break up the firm into two entities, with the UK postal service and GLS (the highly profitable global parcels service) parting company.
What’s more, I keep worrying about red-hot inflation (soaring consumer prices), rising interest rates, a global economic slowdown or recession, and the war for Ukraine. Any one of these might put investors off buying shares, no matter how cheap they seem on paper. But Royal Mail’s dividend yield of 5.7% a year is just too tempting for me to ignore. And for the record, I would happily buy more shares today!
