I was astonished to discover the identity of the most popular UK stock. I would have guessed Lloyds Banking Group or Rolls-Royce, judging by the interest these two generate among Fool users, but no.
Royal Mail (LSE: RMG) is today’s number one UK stock, according to a new study by CMC markets. It analysed Google searches to find the companies with the most popular shares, and Royal Mail was top with an average of 166,100 searches a month.
Is this really our favourite UK stock?
That puts it well ahead of second-placed Tesco, with 61,600 views, and third-placed Tesla at 42,000. FTSE 100 favourites Lloyds, Rolls-Royce and BT Group were even further behind, generating a little over 30,000 monthly views each.
So why Royal Mail? Shares in the parcels, letters and stamps giant are down 50% in the last 12 months. Measured over five years, the FTSE 250 group is down 33%.
CMC didn’t give a reason, so I’m guessing it is has something to do with Czech billionaire Daniel Kretinsky, who is looking to increase his 22% stake in the company. He is already Royal Mail’s biggest shareholder and the government is investigating his intentions under the National Security and Investment Act.
Takeover talk often boosts a company’s share price, although there is little evidence of that happening with Royal Mail.
Management’s long-running dispute with the Communication Workers Union has triggered a summer of discontent, with two strikes in August, with another two on Thursday and Friday. Around 115,000 of its 180,000 workforce will take part. That will hit services and revenues, and tempt disillusioned customers to use competitors.
Royal Mail keeps failing to deliver
That’s a blow, given that the company’s operating margins are already thin at 4.5%, and forecast to narrow further to just 1.5%. Any pay rises will squeeze them even further. Unions are also resisting changes to working practices, making it harder for management to force through the operational change it needs to please customers and boost the bottom line.
Royal Mail’s market-cap has shrunk to £2.5bn, while its net debt is nearing £1bn. That will prove even more burdensome as interest rates rise, which will push up servicing costs. The good news is that its GLS division is doing well and should deliver operating profits of between €370m and €410m in 2022/23.
Perhaps investors are Googling the company because they want to find more about its generous dividend income stream. It is currently forecast to yield a thumping 7.7%, which offers some inflation mitigation. That certainly tempts me. Every balanced portfolio needs a few dividend heroes to keep them ticking over during volatile times. Royal Mail has fulfilled that role ever since it was privatised in 2013.
However, even that silver lining has a cloud, as dividend cover is set to fall to just 0.7. I wonder how sustainable this dividend will prove if the group’s problems persist.
So I’m baffled why investors are searching out Royal Mail in such great numbers. I certainly can’t see many reasons to buy this troubled stock today.
