For me, finding quality shares to buy is much easier than deciding when to sell sliding stocks. That said, I recently sold one of my FTSE 250 holdings.
IDS: I didn’t sell
In June 2022, my wife and I bought shares in International Distributions Services (LSE: IDS), formerly Royal Mail. We paid 273.2p to buy into the provider of the UK’s universal postal service.
Alas, this trade soon went wrong, as the IDS share price kept falling, continuing its descent from 600p in mid-2021. On 14 October, it bottomed out at 173.65p, down almost £1 (or 36.4%) from our entry price.
Launched in 1516 by Henry VIII, the former Royal Mail was battered by lengthy strikes in 2022-23. This industrial action caused huge disruption to the group, racking up huge losses.
On 18 May 2023, the firm revealed an annual operating loss of £1.04bn and cancelled its dividend. I almost sold then, but decided not to with the share price below 200p.
Ditching the no-dividend stock
Despite steep falls in its share price, I held on to our IDS stake and awaited developments — perhaps more by luck than judgement. The shares have since roared back to life, hitting a 2023 high of 291.2p on 22 December.
Seeing this price surge, I decided to seize the opportunity to exit the no-dividend stock. We finally sold our IDS shares for 279.5p a share. After charges, this produced a 6.8% profit on our original investment — boosted by extra shares we’d bought with earlier IDS dividends.
I consider myself lucky to have made a small positive return on this difficult investment. Though IDS boomed as parcel deliveries soared in Covid-hit 2020-21, worker disputes later hit this business hard. And with no dividend expected until 2025, I’m forced to look elsewhere for income.
I’ll buy this Footsie giant
My investing hero, American mega-billionaire and philanthropist Warren Buffett, once said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Taking this advice to heart, I’m going to buy into drinks giant Diageo (LSE: DGE). It’s one of the world’s largest producers of alcoholic drinks, with over 200 popular brands including gin, whisky, rum and stout. Each week, billions of drinkers sip and gulp Diageo products.
However, hit by the higher cost of living, quarterly sales growth has slowed, with sales falling in Latin America and the Caribbean. After weak results on 10 November, the share price crashed to a 52-week low of 2,719p.
On Friday (5 January) the stock closed at 2,765p, valuing this consumer-goods Goliath at £61.9bn. This means that its shares trade on a multiple of 16.8 times earnings. Also, they offer a dividend yield of 2.9% a year, covered 2.1 times by trailing earnings.
To me, these fundamentals look attractive to buy into one of the FTSE 100‘s true powerhouses. Sure, these shares aren’t cheap, but quality usually sells at a premium — much like Diageo’s top-end brands.
Down 24.3% over one year, but up 0.3% over five years, this seems like as good a time as any to get on board the Diageo bandwagon. Hence, I’ll purchase a stake as soon as regulations allow (mid-week next week). And I hope this investment goes better than my IDS trade!
