Shares in Royal Mail (LSE: RMG)were a steal at their flotation price of330p. It was just a shame that private investors could only get their hands on a £750 allocation at that price. The shareshave been comfortably over 600p since then, but have nowfallen back below 450p as the company has run into afew problems.
On Tuesday this week Royal Mail said that its letters business was doing a bit better than it had previously expected. Unfortunately, its parcels business where there is supposedto be lots of potential profits growth has not done as well. Parcels are a nice earner for delivery companies and it seems that the competition for all that online shopping is heating up.As a result, Royal Mail won't make as much money as it thought it would from parcels this year.
The company says not to worry though. It's cutting costs faster, so the all important analyst forecasts, including earnings per share of around 37p, are still on track to be met. Royal Mail will have to reassure investors on the potential for its parcels business, but the company still has one key thing going for it: surging cash flows.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
As Royal Mail comes to the end of some big investment projects, it looks as if the company is going to have a lot of spare cash after it has paid all its bills. This will allow it to pay down debts and also pay bigger dividends. The shares now trade on a prospective dividend yield of 4.7%, and there's plenty of potential for that payout to rise.Royal Mail looks worth buying once again.
Verdict: buy for dividends
-
Which investments can I hold in a stocks and shares ISA – and which ones are banned?HMRC has a list stating which investments are allowed in ISAs, but sometimes investors, and even ISA providers, get confused by the rules. Here’s what you need to know when picking your investments.
-
Review: Andronis Minois and Andronis Arcadia – two Greek island idyllsTravel Andronis Minois on Paros and Andronis Arcadia on Santorini are two beautiful, authentic hotels on two different islands in Greece
-
Royal Mail’s 7.2% dividend yield is now under threatTips Royal Mail's dividend yield is coming under pressure as costs rise and delivery volumes fall. Profits are under threat, and investors can't take anything for granted, says Rupert Hargreaves.
-
Share tips of the weekFeatures MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
-
If you’d invested in: Wizz Air and Royal MailFeatures Wizz Air is the largest low-cost airline in central and eastern Europe – and it is flying high.
-
Company in the news: Royal Mail
Features Phil Oakley explains what the dramatic collapse of competitor City Link means for Royal Mail.
-
Shares in focus: Can Royal Mail deliver profits?Features Pessimism surrounds the mail service’s prospects. Is it overblown, and should you buy the shares? Phil Oakley investigates.
-
Company in the news: Royal Mail Group
Features Royal Mail shares looked tempting before the float. But, now the shares have risen in price, is it too late to buy? Phil Oakley reports.
-
Was the Royal Mail sold off too cheaply?
Features Was the British public betrayed by an overzealous government in the Royal Mail sell-off? Emily Hohler reports.
-
Royal Mail shares soar to new highs - should you bank profits?
Features As ‘unconditional trading’ starts in Royal Mail shares, the price has soared to new highs. Ed Bowsher looks at whether you should sell now, or hold on to them.
