As a veteran value investor, I get rather annoyed when I buy cheap shares for future dividends and growth, only for them to promptly slump in price. It’s particularly frustrating when this happens after purchasing well-known, widely covered FTSE 100 or FTSE 250 stocks.
Another FTSE 250 flop
In late June of last year, my wife bought shares in what was then known as Royal Mail. In early October, the group then changed its name to International Distributions Services (LSE: IDS).
More than a year ago, we paid an all-in price of £2.73 a share to buy our stake in what was soon to become IDS. We bought this holding as a value and dividend play, drawn by the high cash yield this stock offered at that time.
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Alas, this FTSE 250 firm’s shares soon headed sharply south. By 14 October, they’d plunged to a 52-week low of 173.65p. At this point, we were sitting on a paper loss of more than a third (-36.4%). Urgh.
But I’m not a short-term investor. And the good news is that this stock has suddenly come back to life recently, leaping upwards since early June. Here’s how it has performed over six different timescales:
| Five days | +6.4% |
| One month | +14.7% |
| Year to date | +16.9% |
| Six months | +11.2% |
| One year | -10.3% |
| Five years | -46.6% |
Also, since closing at 197.2p on 9 June, this popular and widely held stock has since jumped by more than a quarter (+26%). This recent surge of strength has saved me some blushes, plus it has improved my standing with my fund administrator (my good lady wife).
For me, IDS is ‘in triage’
As I write just before the closing bell on Monday afternoon, the IDS share price stands at 248.5p. This still leaves it 9% below our buy price, but I can easily live with that. However, two problems remain that mean this FTSE share doesn’t enjoy my full confidence right now.
First, the company may well make a substantial loss in the current financial year — something I very much dislike as a value-oriented investor.
Second, the group scrapped its cash dividend last November, so this FTSE 250 share currently has a running cash yield of 0%. Again, this isn’t great for me, because I love watching my dividends rolling in.
Given these setbacks, I’ve put this stock into what I call ‘triage’. This means that while I have no immediate intention of selling these shares, I won’t be buying more any time soon. In other words, IDS stock is on my ‘watch and wait’ list for now.
When might this change? Ideally, I’d like to see the firm’s profitability improve, given that it has reached agreement with unions to end strike action. Also, I’d like some firm news on when the dividend will be reinstated. But that could well be some while away!
