Royal Mail Share Discussion Threads

[unastubbs] 29/5/2019 11:36

Questor: Royal Mail inflicts a dividend cut on the Income Portfolio. Do we sell the shares or hold on?

An unhappy milestone has been reached: the Questor Income Portfolio has suffered the first dividend cut from one of its stocks.

Royal Mail announced on Wednesday that, while the divi for the year that ended in March would be increased by a penny to 25p a share, it would be cut by 40pc to 15p for the current financial year.

Thereafter the ordinary dividend is likely to remain at 15p, with the possibility of top-ups from special divis if there is cash to spare. The money released by the dividend cut will be used to invest in a restructuring programme.

Our previous analysis of the sustainability of Royal Mail’s dividend had focused on its apparent affordability in terms of cash generation and the existence of reserves. However, there was not much in the way of safety margin between the cash generated and what was required to pay the dividend, and the company has now said it needs to invest more to modernise the business.

That investment, and expected lower cash flow in the early years of the restructuring programme, meant the dividend had to be cut.

One aim of the transformation is to improve productivity and margins in the British operations, which will be increasingly “parcels led”. The GLS international arm is already a parcels and freight business so the focus there will be on growing sales while protecting margins.

While restructuring plans can always go awry, or fail to deliver the benefits hoped for, we take some comfort from the new dividend policy.

A cut in the divi is normally the last thing that company bosses want to preside over. In this case the chief executive, Rico Back, is in the clear because he took over only last year.

A second dividend cut, however, would be another matter so we can feel reasonably sure that he and the board think the new level is sustainable. The fact that they can contemplate special payments on top is also reassuring.

Even if we think the new dividend is sustainable, should we hold on to the shares?

The 15p-a-share figure equates to a yield of 7.6pc at the current share price of 197.9p. It follows that, if we were to sell the shares now, we would need to find a replacement investment that yielded 7.6pc to avoid a further fall in the portfolio’s income beyond that caused by Royal Mail’s dividend cut.

Such a figure automatically means a high level of risk, so we would risk swapping one troublesome asset for another. In fact, that 7.6pc yield seems too high in view of the reassurance we take from Royal Mail’s new policy. In other words, we think the shares have been punished excessively and could recover from here.

Selling now would therefore cement a capital loss that seems out of proportion to the income damage we are sustaining. We will hold on.

[gaffer73] 29/5/2019 11:20

Labour stand zero chance of getting in so I wouldn't worry about it.

[encarter] 29/5/2019 09:39

Labour have already stated that they will issue bonds to cover renationalisation. They will be at the original issue price of £3.30

[creditcrunchies] 29/5/2019 09:14

don't forget Labour will be promising a lot like pumping up the NHS, the public sector in general so borrowing will surge up. Re-nationalising industry sounds good for a campaign but it'll cost them on top of so many other promises they'll bust the economy in their first term

[spob] 29/5/2019 08:41

What politicians say they will do before a general election and what they actually do, are two entirely different things

[buywell2] 29/5/2019 08:34

Nationization for both or else ... dinosaurs is what they are

[typo56] 29/5/2019 08:22

Deutsche Post bid rumour? Not a lot changes. This was 10 years ago...



I guess it could happen, eventually.

[retsius] 28/5/2019 23:03

Up tomorrow then??

[millennial] 28/5/2019 22:40

Deutsche post 390p a share bid rumour

[typo56] 28/5/2019 21:32

The high uncrossing volume will be down to the MSCI index reshuffle which took effect at close. Plenty of other stocks affected. e.g. SPX, HSO, HLMA, RTO...

[encarter] 28/5/2019 20:20

No holders with that amount of stock so must be a worked buy imho. Either way it's a turning point for sure. Top up for me in the a.m.

[fred splange] 28/5/2019 17:55

Takeover brewing?

[lefrene] 28/5/2019 16:56

It's an uncrossing trade, so is it the reconciliation of a long worked sale? Because presumably if it had been a worked buy, the share price would be rather higher. It might be a turning point?

[samartin] 28/5/2019 16:52

That's one massive trade gone through 77million!What's that all about

[gazza270667] 28/5/2019 16:16

Unfortunately your right were finished at nobodies doing anything about it ?

[s25ava] 28/5/2019 14:57

More Director Buys RNS...just now

[nick rubens] 28/5/2019 13:33

One observation I would like to make is that Labour should pledge to buy RMG back at 310p per share (or more) in their manifesto as they made much political capital claiming the company was purposely sold on the cheap to city friends etc.

[nick rubens] 28/5/2019 11:57

cheers, both you guys. It's an interesting share at this price level and wish you good returns, though It's out of my influence and in the hands of the directors to achieve more important company value for shareholders than just salaries and pension contributions for themselves.

[s25ava] 28/5/2019 11:31

Assets of £3.6billion of which £2billion is property according to article

[encarter] 28/5/2019 11:14

No the rebased dividend will stay the same. Labour won't get in. Brexit won't happen before the next election and we will witness the rise of the far right.

[nick rubens] 28/5/2019 10:38

Non of my comments are meant for criticism, just a nervous investor.

encarter Then what happens when you get 32p back for investing at 210p? Will the dividend get cut again? Labour take over etc?

Have any listed parcel delivery companies ever grown and achieved anything for shareholders?

I know RMG are the best known and biggest delivery company but IMO will likely struggle to competition. Am I too pessimistic?

s25ava What are the net assets for RMG made up of? Do they own freehold land and such?

cheers NR

[encarter] 28/5/2019 09:15

Yes. 32p divi in next 13 months.