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Over the past seven months, my wife and I have built a new portfolio of stocks. We bought 17 different companies: six US stocks and 11 FTSE 350 members Unfortunately, three of these purchases have disappointed so far.
FTSE Flop #1 – Khaki
The largest paper loss in our new portfolio comes from the real estate developer Khaki (LSE: PSN). We bought this stock in July because of its double-digit dividend yield, one of the highest in London. We paid 1856p per share, buying long after the price fell from its 2022 high of 2596p.
But with inflation skyrocketing and interest rates rising, this FTSE 100 flop keeps falling. At its 52-week low on October 12, it plummeted to 1,113.5 pence. Since then the share price has recovered to close at 1,373.5 pence on Friday, down 26% since we bought. In addition, the stock is down 46.5% in one year.
With storm clouds closing in on UK property prices, Persimmon expects to cut its dividend this year. Personally, I expect less than half of the previous full year’s payout of 235 pence per share. The investment lesson for me here is that high dividend yields often come with high risk. Unfortunately, I am still drawn to the ultra-high yielding FTSE 350 stocks from time to time.
Faller #2: International Distribution Services
International Distribution Services (LSE: IDS), formerly the Royal Mail Group, has been the UK’s universal postal service provider for 507 years. In mid-2022, we bought IDS at a share price of 273.2 pence. At its 52-week high, this stock peaked at 493.8 pence on Jan. 20, 2022. It’s been pretty much downhill since then.
Repeated industrial action at Royal Mail has collapsed the group’s profits. And a cyberattack that prevented the group from sending mail abroad was another setback. At its 2022 low, shares plunged to 173.65 pence on Oct. 14.
On Friday this FTSE 250 share closed at 221.3 pence, 19% below our purchase price. This makes International Distributions Services our second biggest loser in 2022-23. In addition, this popular participation has plummeted by more than half (-53.3%) in one year.
I admit I was overly optimistic about the company’s prospects in 2022-23. But the jewel in the company’s crown is GDS, an international distribution group that continues to do well. Therefore, I expect a reasonable dividend from this stock in 2023, but perhaps a reduced one. My lesson here is to not buy companies with legacy staffing problems.
Loser #3: Hotline
The third biggest loser in our portfolio is the FTSE 250 firm Hotline Insurance Group (LSE: DLG). We bought this insurance giant at the end of July for 200.3 pence per share. At its 52-week high, Direct Line shares peaked at 312.97 pence on January 20, 2022. Again, they had already fallen quite steeply before we bought them as potential value stocks.
Unfortunately, a profit warning on January 11 sent these shares tumbling 23.5% that day. This turned our position from a modest gain into an equivalent loss. On Friday, this stock closed at 173.65 pence, 13.3% below our purchase price (and a 43.6% drop in one year).
My final lesson here is the power of diversification and long-term thinking. Despite these three big losses, our new portfolio remains profitable, thanks to cash dividends and better-yielding components. Ultimately, we intend to hold on to the three ‘fallen angel’ stocks until their prospects improve. Fingers crossed!
