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For 36 years, I’ve honed my investment strategy to look for value stocks and dividend income. Sometimes dividend investing goes horribly wrong and blows up the holdings. Here’s my story of three dividend dogs (in order A-Z) and my reason for continuing to buy dividend stocks.
Dividend Howler #1: Hotline
Last July, my wife bought shares in Hotline Insurance Group (LSE: DLG, paying 200.3p per share. In early 2022, the insurer’s shares were up 16%. So far, so good.
On January 11, the group disclosed £90m in additional bad weather claims following the December cold snap. In addition, Direct Line canceled its cash dividend, sending its shares down nearly a quarter (-23.5%) that day. On January 27, CEO Penny James resigned.
Today, these shares are trading at 178.6p, 40.5% less than in the last 12 months. This has reduced its market value to £2.3bn. That’s a long way from his days like FTSE 100 member.
For now, this former dividend dynamo offers no cash yield, the worst outcome for dividend investing. But we will hold on to this slumping stock for its recovery potential and the resumption of cash payments.
Dividend Mistake #2: IDS
International Distribution Services (LSE: IDS), formerly royal mail, dates back to 1516 and King Henry VIII. But his stock took a rollercoaster ride in 2022, thanks to industrial action.
Since last summer, members of the IDS union have gone on strike for 18 days. Postal workers are on strike for better wages and working conditions, but their employer refuses to budge.
To date, the strike has cut £200m from the company’s profits, but the two sides are a long way from reaching an agreement. My wife bought these shares at 273.2 pence last June. They are now trading at 231.7 pence, 15.2% less than their purchase price and 40.6% less in 12 months. This values the group at £2.2bn.
While Royal Mail is struggling, GLS Group, the international logistics business, is very profitable. When union leaders and IDS management come to an agreement, the stock could skyrocket. Still, I expect a fairly steep cut in the next few dividend payments. Despite this, we’ll stick with this sick part for now.
Dividend Disaster #3: Persimmon
Easily my worst investment decision of 2022 was convincing my wife to buy shares in the UK homebuilder Khaki (LSE: PSN) at 1,856p in July. I had hoped that this real estate stock was ripe for a recovery, as it had tumbled from its spring 2021 highs.
Unfortunately, I turned out to be completely wrong. Persimmon’s shares have been in free fall ever since. They currently sit at 1,411 pence, having fallen 24% from our purchase price. They have also collapsed 40.8% in the last 12 months. Urgh.
With interest rates rising, UK house sales are declining and furthermore, analysts expect house prices to follow suit soon. This is not good news for Persimmon, but the £4.5bn group has a fair amount of net cash on its balance sheet.
Still, I expect this company to maybe halve its cash dividend payout in the future. Another black mark for my prized dividend investment.
In summary, these were three recent failures as a dividend investor. But my many successes easily make up for these losses. In fact, my new family portfolio is already showing decent gains. So I’ll keep investing dividends for life!
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