The FTSE failing five

[Dod101]

In the TImes this morning there is an article commenting on the failing five. They could also be called the famous five I suppose. They are Sainsbury, BP, BT, Vodafone, and Lloyds which as the commentator says are household names and may well one way or another be in most investors' portfolios. The point he makes is that the share price today for each of them is very much lower than it was 20 years ago, thus destroying shareholder value in a big way.

He tells us we could add NatWest (RBS that was), Aviva, RSA, Barclays, Pearson, HSBC, IAG, Standard Chartered and Royal Dutch Shell. I could also have added at least the two tobacco companies. Pretty depressing stuff.

The late Sir John Harvey-Jones of ICI (another failed share) apparently once said 'Business is often about killing your favourite children to allow others to succeed.' Not a very attractive way to put it but I can see what he is saying.

As it happens they are all or at least were all high yielding shares. Maybe that is telling us something.

Dod

[NeilW]

The FTSE 100 has gone nowhere in 20 years

It got up to 6930 in 1999.

It's 6001 today. 14% lower.

[tjh290633]

I could also have added at least the two tobacco companies. Pretty depressing stuff.

You would have been wrong in the case of Imperial Tobacco, 530p in 2000 but 1253p last night.

TJH

[Dod101]

I could also have added at least the two tobacco companies. Pretty depressing stuff.

You would have been wrong in the case of Imperial Tobacco, 530p in 2000 but 1253p last night.

TJH

I suppose that should cheer me up. You are correct of course because I still have some |Imperial Brands (for free) as I long since took my original cost price out. They along with BAT have still fallen from grace in most people's book though.

Dod

[Dod101]

The FTSE 100 has gone nowhere in 20 years

It got up to 6930 in 1999.

It's 6001 today. 14% lower.

The FTSE of course is derived from its constituents so I am not sure that that gets us very far.

Dod

[Dod101]

Considering that all the shares mentioned (possibly with the exception of IAG) are or have been stalwarts of every high yield portfolio, I find it surprising to say the least that there has been no further comment. Maybe everyone is (S)hell shocked.

Are they all yesterday's shares? Some have been affected by Covid but not many.
Lack of management talent?
Too much emphasis on producing dividends and not enough on reinvesting for the future?
Short termism?

All of the above I would have thought. I am sure investment funds are available if the project is right, although that is often cited as the problem. It is much deeper than that. This is the sort of thing that the IOD, Boris and others ought to be really concerned about, but they all seem to be ignoring the problem. Some think tank or three have probably looked at this but what we need is to produce the conditions for a few more (many more) Jim Radcliffs and James Dysons to flourish.

Of those listed, I hold only HSBC and Shell plus the two tobaccos. I am currently more or less extracting myself from Imperial. I have sold half of my holding and would quite like to keep the balance to see what the new CEO will do. I have held many of the others listed but could see no future in them for a variety of reasons.

This ought to concern us as investors.

Dod

[dealtn]

The point he makes is that the share price today for each of them is very much lower than it was 20 years ago, thus destroying shareholder value in a big way.

I'd be much more focussed on where they will be in 20 years time (or much less, if I'm honest) than where they were.

[Dod101]

The point he makes is that the share price today for each of them is very much lower than it was 20 years ago, thus destroying shareholder value in a big way.

I'd be much more focussed on where they will be in 20 years time (or much less, if I'm honest) than where they were.

Of course, and that follows from the initial observation, so what do you think?

Dod

[Dod101]

The board of BT Group is preparing to defend it against takeover approaches from industry rivals and buyout firms after the suspension of its dividend prompted its shares to slump to their lowest level in more than a decade.

https://news.sky.com/story/bt-group-boa ... s-12054366

I would suggest that all of your famous five might be thinking about this now.

This story is also on the front cover of the Sunday Times, quoting the same source. The whole thing could of course be simply running in the absence of any news. I wonder who might want to buy BT even at today's price of around £10 billion. It would though force shareholders out of their misery.

Dod

[dealtn]

The board of BT Group is preparing to defend it against takeover approaches from industry rivals and buyout firms after the suspension of its dividend prompted its shares to slump to their lowest level in more than a decade.

https://news.sky.com/story/bt-group-boa ... s-12054366

I would suggest that all of your famous five might be thinking about this now.

This story is also on the front cover of the Sunday Times, quoting the same source. The whole thing could of course be simply running in the absence of any news. I wonder who might want to buy BT even at today's price of around £10 billion. It would though force shareholders out of their misery.

Dod

You might find that some value OpenReach at a higher price than the entire company.

[dealtn]

... so what do you think?

Dod

I have held 4 of SBRY, BP, BT, VOD and LLOY in the past but currently only hold 2.

LLOY as I like the recovery prospects of banks, though haven't been a great fan of its management who are more concerned by how they are perceived than in driving a share price.

BT as a contrarian play. I think someone will make a move for OpenReach, or at least force the Board to consider how to out the value here. I also like the Pension Deficit play.

SBRY I think is a low margin business whose prospects of improvement are very difficult. Volume rises on the back of the Covid pandemic are likely to be more temporary than the increased costs that come with it. Hard to see this changing in sentiment or valuation in the near term (although I would be surprised if it wasn't still one of the largest sellers of food and goods to a population that will still be eating in 20 year's time).

BP and VOD I haven't looked at for over 2 years. If I did I would expect my investment would either be contrarian, or a macro play on the Oil price.

So with none of my reasons for investing being (high) yield driven, it is borderline how my views do more than overlap with many of those on this Board. High Yield (assuming it is being paid) is a hunting ground for me for Value or Contrarian plays, not income ones.

[tjh290633]

When asked, I always like to produce my list of my portfolio, sorted by price change since 1st January:

Epic   Change    Yield 
KGF     26.04%    1.22%
RB.     22.99%    2.31%
ADM     15.46%    5.55%
AZN     10.91%    2.55%
SGRO     7.87%    2.22%
RIO      4.06%    6.37%
ULVR     3.64%    3.16%
PHP      1.06%    3.85%
BHP     -2.99%    5.31%
BA.     -5.10%    4.39%
NG.     -7.17%    5.55%
PSON    -9.23%    3.36%
SSE     -9.84%    6.19%
UU.     -9.96%    5.02%
TSCO   -10.85%    4.07%
IMI    -11.37%    3.21%
TATE   -12.10%    4.41%
WMH    -13.24%    0.00%
GSK    -14.83%    5.25%
S32    -14.84%    2.12%
DGE    -19.08%    2.69%
BATS   -21.83%    8.32%
VOD    -22.14%    6.83%
LGEN   -26.14%    7.89%
SMDS   -30.95%    0.00%
AV.    -32.86%    5.54%
IMB    -32.96%   10.89%
TW.    -37.62%    0.00%
CPG    -38.44%    0.00%
BP.    -42.04%    5.89%
BLND   -43.55%    4.48%
BT.A   -47.10%    0.00%
MKS    -48.57%    0.00%
RDSB   -51.99%    4.65%
LLOY   -55.04%    0.00%
MARS   -62.30%    0.00%

No surprises at the bottom of the table. Some predictable figures at the top, but note that KGF and WMH are the highest ranked shares which have passed dividends.

TJH

[scrumpyjack]

The FT100 is hugely weighted towards banks and oillies which have specific problems. The banks were knocked out by the financial crisis, the PPE scandal and falling interest rates hurting their margins.

The cycle of capitalism is small companies succeeding, growing, becoming big companies, maturing, going stale or declining. Everything changes – it always did, The ancient greek term was ‘panta rei’, the romans said ‘omnia mutant’

So buying the largest high dividend FT100 companies must mean you are leaning to companies at or past their peak.

But if you look at total return, rather than simply the FT index, it has not been that catastrophic as long as you remember that some of those dividends were really eating your capital.

[Dod101]

The Romans as far as I know said 'Omnia mutantur' and I should have said Jim Ratcliff.

Anyway I take the point, and I must say from TJH's list, I was quite surprised to see how far down it Legal & General stands.

The FTSE is of course suffering from the fact that there are no tech high flyers in it or at least very few, so we are getting the decay but not the new growth and that has to be a concern not just for us investors but for the future of the country.

Dod

[jackdaww]

LGEN - legal & general was available at under £1 around 2008 and 2011 .

one of the few non failures .

[G3lc]

Rather than rubbishing these English companies perhaps we should appreciate their loyalty to us shareholders, and dividends they have paid us over the years, and ignore the enemy within who are happy to take the money but at the first opportunity take every opportunity to drag them down.

[Wizard]

The Romans as far as I know said 'Omnia mutantur' and I should have said Jim Ratcliff.

Anyway I take the point, and I must say from TJH's list, I was quite surprised to see how far down it Legal & General stands.

The FTSE is of course suffering from the fact that there are no tech high flyers in it or at least very few, so we are getting the decay but not the new growth and that has to be a concern not just for us investors but for the future of the country.

Dod

Well only a concern to us as investors if we are wedded to only investing in UK companies. Based on some polls a while back that seems to be very few that post here, it seems even the majority of those with an HYP also have investments in other geographies through ITs if not direct shareholdings.

[Dod101]

Rather than rubbishing these English companies perhaps we should appreciate their loyalty to us shareholders, and dividends they have paid us over the years, and ignore the enemy within who are happy to take the money but at the first opportunity take every opportunity to drag them down.

No one I think is deliberately rubbishing them but an ability to keep paying dividends is no great attribute if they are largely being paid out of capital or borrowings. Investing is surely about total return not just about dividends especially where the share price has dropped dramatically over the last 20 years. None of the shares quoted could be said to have been a great success for a long while. Some no doubt will come good again, at least I hope they do, but the outlook is not brilliant as far as I can see.

To respond to Wizard, yes that is true, but we are discussing FTSE shares and what is wrong with the UK business environment.

Dod

[jonesa1]

SBRY I think is a low margin business whose prospects of improvement are very difficult. Volume rises on the back of the Covid pandemic are likely to be more temporary than the increased costs that come with it. Hard to see this changing in sentiment or valuation in the near term (although I would be surprised if it wasn't still one of the largest sellers of food and goods to a population that will still be eating in 20 year's time).

If Amazon seriously tilt at the UK grocery market, companies like Sainsbury will need to find a way to stay alive on even thinner margins. CV19 has encouraged a lot more people to try online grocery shopping and now would look like a great opportunity for Amazon to buy a large chunk of that market and grow it. Maybe free same day delivery with a Prime account (rather than having to book a slot weeks in advance)? I don't see any of the UK super-markets being able to compete without major changes to their businesses.

[scrumpyjack]

The Romans as far as I know said 'Omnia mutantur' and I should have said Jim Ratcliff.

Anyway I take the point, and I must say from TJH's list, I was quite surprised to see how far down it Legal & General stands.

The FTSE is of course suffering from the fact that there are no tech high flyers in it or at least very few, so we are getting the decay but not the new growth and that has to be a concern not just for us investors but for the future of the country.

Dod

Yes sorry my classics is rather rusty - it is over 50 years since I read it and a lot has changed since then!