As a veteran value/income/dividend investor, I spend a lot of time looking for beaten-down and battered FTSE 100 and FTSE 250 stocks. My goal is to find ‘fallen angels’ — otherwise solid companies whose share prices have taken (hopefully) temporary knocks.
FTSE flops
Earlier today, I checked the Footsie’s performance to learn that it is down 2.5% over the past year, excluding dividends. It’s also up a mere 7.8% over five years (also excluding dividends).
These are hardly returns to write home about, but things have been far worse for some FTSE 100 firms. Indeed, in a quick search, I found 19 Footsie shares that had lost at least a fifth of their value over the last 12 months.
To my surprise, I discovered that my wife and I owned six of these losers and laggards. Our worst performer of these six was also the 98th-worst performer in the entire index over one year. Here it is.
Aggro from Anglo American
My wife and I bought shares in mining group Anglo American (LSE: AAL) in mid-August 2023, paying an all-in price of 2,202p a share. This was well below their closing price of 3,568p on 13 January 2023.
We bought into Anglo for two reasons. First, for future capital growth from a rising share price. Second, for its generous dividend yield, which easily beat the FTSE 100’s cash yield of below 4% a year.
Unfortunately, mining shares — like underlying commodity prices — can be very volatile. This has certainly proved to be the case for Anglo’s stock, which has ranged from a high of 3,447p to a low of 1,630p over the last year.
As I write on Friday afternoon, Anglo’s share price stands at 1,832.8p, valuing the group at £24.3bn. This means we are sitting on a paper loss of more than a sixth (-16.8%) from our holding. It also leaves this stock down a whopping 45.9% over one year, but only 4.8% lower over five years.
Could this be a steal?
After a year of steep price falls, Anglo shares looked unloved and unwanted. But could they also be undervalued? I’m not convinced, because they trade on 13.6 times earnings, which is broadly in line with the wider mining sector.
Then again, this slumped stock offers a market-beating dividend yield of 5.5% a year. However, this is covered only 1.33 times by earnings. Hence, if Anglo’s revenues and earnings fall further in 2024, then this payout could be under threat.
Also, Anglo’s dividend payments have been falling, driven lower by sliding commodity prices. For the 2021 financial year, each share earned a dividend of $1.18, plus a special dividend of $0.50 cents. Last year, the total payout was $0.74, with no special dividend.
In short, though I see potential for this FTSE 100 stock to rebound, I’m not convinced that it’s cheap enough for me to buy more shares. Therefore, I will hold on to my existing stake, while awaiting the 8 February production report and 22 February earnings release with my fingers crossed!
