ZipserSir wrote:
In November, I was fortunate enough to buy Royal Mail Group (RMG). Since then the price has risen by more than 40%.
This is great as a value play, but as a HYP it means that I could either wait for six and a half years to get the same return from dividends (and heaven knows what will happen to the share price in the meantime) or I could sell it now, crystallize the gain and reinvest it somewhere to get a better return elsewhere.
Selling looks like the right thing to do, to me, but how do others see it?
If you initially bought for income, then concentrating just on the share-price to help guide selling decisions will only ever show you half the story.
You need to keep an eye on the
yield as well, to see how that reacts to any potential share price movement, especially over long periods, and then take that into account when you're looking at potential changes to your income portfolio.
For instance, I see that Digital Look show
Royal Mail as having a
Current Yield of 4.4%, and a
Forecast Yield of 4.8% -
https://uk.webfg.com/equity/Royal_MailSo, in the absence of there being any portfolio-diversification issue, where a large share-price rise might mean that your uncomfortable with a holding due to its capital allocation in relation to other holdings (you've not mentioned this as being an influence in this decision....), then the issue you'd have if you sold it would be just where you're going to put the proceeds that will deliver the same or better income-related returns...
That would mean that any potential home for the proceeds of this sale might need a better current yield than 4.4%, and a better prospective yield of 4.8%....
You might have such a home in mind, or you might currently not want to re-invest the proceeds from a sale back into the market, but you've not mentioned those aspects, and have purely discussed a potential sale based on the rise in the share price alone.
I should add that sometimes, income-related stocks will have a share-price that rises considerably over time in a way that
isn't also reflected with a corresponding rise in dividend payments. This means that you
may find situations where you might be looking at a considerable capital gain in an income-related share, that's also
now yielding a great deal less than it was when it was first purchased.
In
these situations, I've been known to rotate capital out of such investments and into better-yielding alternatives, at the same time as quite often sorting out some potential capital-diversification issues if the initial share-price gains has meant that the holding reaches levels that you're perhaps uncomfortable with compared to the rest of your portfolio.
But these
specific situations are where a share might now be yielding perhaps 2%, or thereabouts, which brings me neatly back to my initial point, which was to say that by
just concentrating on an income-investment's
share-price rise, you're not fully considering the income-related situation, or what your alternatives might be should you choose to take action....
Cheers,
Itsallaguess
p.s I should also add that with the above post, I've consciously stayed away from the company itself that you're asking about, and tried to discuss more general income-investment-related considerations, but I feel that I
should also add that I held RMG for a time during and after the privatisation period, but quickly sold as I don't particularly like the market that it's in, or a couple of other things related to the company, but that's my personal view and shouldn't at all influence your own thinking on the stock. I gave the privatisation gains to charity, as I didn't want to personally gain from the process.