When dividend investing goes badly wrong!

I’ve been a big fan of dividend investing for several decades. This income-based investment strategy can go very wrong, but I’m not discouraged.

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Over 36 years, I’ve honed my investing strategy to hunt for value shares and dividend income. Sometimes, dividend investing goes horribly wrong, blowing up shareholdings. Here’s my tale of three dividend dogs (in A-Z order) and my reason for continuing to buy dividend shares.

Dividend howler #1: Direct Line

Last July, my wife bought shares in Direct Line Insurance Group (LSE: DLG, paying 200.3p per share. By early 2022, the insurer’s stock was up 16%. So far, so good.

On 11 January, the group revealed £90m of extra bad-weather claims following December’s cold snap. Also, Direct Line cancelled its cash dividend, sending its stock crashing by almost a quarter (-23.5%) that day. On 27 January, CEO Penny James stepped down.

Today, these shares trade at 178.6p, down 40.5% over the past 12 months. This has sliced its market value to £2.3bn. That’s a long way from its days as a FTSE 100 member.

For now, this former dividend dynamo offers no cash yield — the worst outcome for dividend investing. But we’ll hang on to this slumped stock for its recovery potential and resuming cash payouts.

Dividend blunder #2: IDS

International Distributions Services (LSE: IDS), formerly Royal Mail, dates back to 1516 and King Henry VIII. But its shares had a roller-coaster ride in 2022, thanks to industrial action.

Since last summer, IDS union members have staged 18 days of strike action. Mail workers are striking for better pay and working conditions, but their employer refuses to budge.

To date, strike action has slashed £200m from company profits, yet the two sides are a long way from a settlement. My wife bought these shares at 273.2p last June. They now trade at 231.7p, down 15.2% from her buy price and 40.6% lower over 12 months. This values the group at £2.2bn.

While Royal Mail struggles, GLS Group — the international logistics business — is highly profitable. If and when union leaders and IDS management reach a deal, the shares could soar. Even so, I expect a fairly steep cut in the next dividend payouts. Despite this, we’ll hang on to this ailing share for now.

Dividend disaster #3: Persimmon

Easily my worst investing decision of 2022 was convincing my wife to buy shares in UK housebuilder Persimmon (LSE: PSN) at 1,856p in July. I hoped that this property stock would be ripe for recovery, having already tanked from its spring 2021 highs.

Sadly, I turned out to be dead wrong. Persimmon shares have been in freefall ever since. Currently, they stand at 1,411p, having crashed 24% from our buy price. They’ve also collapsed by 40.8% over the past 12 months. Urgh.

With interest rates rising, UK house sales are declining, plus analysts expect house prices to follow suit soon. This is hardly good news for Persimmon, but the £4.5bn group does have a healthy pile of net cash on its balance sheet.

Even so, I expect this company perhaps to halve its cash dividend payout going forward. Another black mark for my cherished dividend investing.

Summing up, these were three recent failures as a dividend investor. But my many successes easily outweigh these losses. Indeed, my new family portfolio already shows decent profits. So I will stick to dividend investing for life!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in Direct Line Insurance Group, International Distributions Services, and Persimmon shares. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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