February has seen shares in London listed companies finally experience some volatility and drop a notch. There was a combination of reasons for this; weakness in US shares, the rising value of the pound and the fear that interest rates may be increased faster than expected. This latter point is the most pronounced with the result being that solid defensive companies have seen their share prices drop more than the wider market. As someone still in the wealth accumulation stage of their life, I cherish lower stock prices as it gives me the opportunity to buy the stocks I like on the cheap.
The only people who should wish for higher stock prices are those people in retirement whom are drawing down their portfolio for income. For the rest of us, lower stock prices are great news as it means we are able to purchase future dividend income on sale. As individual investors, we need to view stocks as partial ownership of real businesses (link). We should not worry about stock price fluctuations.After all, if you owned an apartment building next to a university that is always occupied, you won’t give a damn if their quoted valued fell by 5%, 10%, 20% in one single day. As long as you can rent your building out, you should do just fine by ignoring “quoted values”.
With this in mind, I took the opportunity presented in February to purchase shares in the following businesses.
- Imperial Brands – Bought 28 shares at £26.53 each
- GSK – Bought 13 shares at £12.97 each
- National Grid – Bought 20 shares at £7.50 each
- Shire – Bought 9 Shares at £31.11 each
The purchases above will give me a total annual dividend of £81. To make the above purchase, I invested £1,527. If I had bought these same shares just 12 month ago, it would have cost me roughly £2,118. I have bought my shares a full £590 cheaper!
This is what I mean when I say people in the accumulation phase of their life should cheer lower stock prices provided nothing fundamental has changed in the underlying business. With the above companies, although there are certain concerns surrounding them – such as lack of emerging market exposure for Imperial Brands, drug reform for GSK and Shire and nationalisation for National Grid – I believe share prices have fallen more than warranted due to the market sell off. I ain’t complaining though. I am getting shares in quality businesses on the cheap. And I’m sure when I one day look back at the above purchases made, I’ll smile at the sheer joy the dividends thrown off have provided over the years.