Over the past seven months, my wife and I built a new share portfolio. We bought into 17 different companies: six US stocks and 11 FTSE 350 members. Alas, three of these purchases have disappointed so far.
FTSE flop #1: Persimmon
The biggest paper loss in our new portfolio comes from property developer Persimmon (LSE: PSN). We bought this stock in July for its double-digit dividend yield — one of the highest in London. We paid 1,856p for each share, buying long after the price tumbled from its 2022 high of 2,596p.
But with inflation soaring and interest rates rising, this FTSE 100 flop keeps falling. At its 52-week low on 12 October, it crashed to 1,113.5p. The share price has since rebounded and closed at 1,373.5p on Friday, down 26% since we bought. Also, the stock is down 46.5% over one year.
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With storm clouds gathering over UK property prices, Persimmon expects to prune its dividend this year. Personally, I’m expecting less than half of the previous full-year payout of 235p a share. The investing lesson for me here is high dividend yields often come with high risks. Unfortunately, I’m still drawn to ultra-high-yielding FTSE 350 stocks now and then.
Faller #2: International Distributions Services
International Distributions Services (LSE: IDS), formerly Royal Mail Group, is the 507-year-old provider of the UK universal postal service. In mid-2022, we bought into IDS at a share price of 273.2p. At its 52-week high, this stock peaked at 493.8p on 20 January 2022. It’s been pretty much all downhill since then.
Repeated industrial action at Royal Mail has collapsed group profits. And a cyber-attack preventing the group from sending post abroad was another setback. At their 2022 low, the shares crashed to 173.65p on 14 October.
On Friday, this FTSE 250 share closed at 221.3p, down 19% from our buy price. This makes International Distributions Services our second-biggest loser in 2022-23. Also, this popular share has crashed by more than half (-53.3%) over one year.
I admit that I was too optimistic about the firm’s prospects in 2022-23. But the jewel in the company’s crown is GDS, an international delivery group that’s still going well. Thus, I expect a reasonable dividend from this stock in 2023, but perhaps reduced. My lesson here is not to buy into companies with legacy staffing problems.
Loser #3: Direct Line
Our portfolio’s third-biggest loser is FTSE 250 firm Direct Line Insurance Group (LSE: DLG). We bought into this insurance giant in late July for 200.3p per share. At their 52-week high, Direct Line shares peaked at 312.97p on 20 January 2022. Again, they’d already fallen fairly steeply before we snapped them up as potential value shares.
Unfortunately, an 11 January profit warning sent this stock plunging by 23.5% that day. This turned our position from a modest profit into a matching loss. On Friday, this share closed at 173.65p, down 13.3% on our purchase price (and having plunged 43.6% over one year).
My final lesson here is the power of diversification and long-term thinking. Despite these three hefty losses, our new portfolio remains in profit, thanks to cash dividends and better-performing constituents. Finally, we intend to hang onto all three ‘fallen angel’ shares until their prospects improve. Fingers crossed!
