Shares in price comparison leader Moneysupermarket.com (LSE: MONY) fell by 4% today, after the firm announced that Money Saving Expert founder Martin Lewis had sold 9m shares, worth £25m, in the firm.
ITV (LSE: ITV) did better, gaining nearly 4% after it emerged that the television company’s largest shareholder, cable giant Liberty Global, has increased its holding to 9.9%.
Both firms have proved to be superb investments over the last five years. Shares in ITV have risen by 443% since August 2010, while Moneysupermarket.com shares have gained 307% over the same period.
In the last year alone, Moneysupermarket.com has climbed 55%, while ITV has risen by 35%.
At first glance, these figures suggest that now could be a good time to take profits in both firms. Certainly Mr Lewis’s timing looks good, as the shares he sold today were worth around 150% more than when he sold his Money Saving Expert website to Moneysupermarket.com in 2012.
A classic mistake?
I wouldn’t blame you for wanting to lock in some gains on your successful investments. Yet selling winning stocks (and keeping losers) is a classic investing mistake.
It’s often best only to sell shares when you have a specific reason to do so. Even Mr Lewis, whose wealth was probably a little too concentrated in just one company, has kept hold of nearly half his Moneysupermarket.com shareholding.
Except for rebalancing your portfolio, I’m not sure there is a good reason to sell ITV or Moneysupermarket.com. Both companies seem be sitting in a sweet spot of sustained growth and growing profitability.
Valuation can be another reason to sell, but neither of these companies is outrageously expensive, and both offer a dividend yield that’s in-line with the market average:
| Â |
Moneysupermarket.com |
ITV |
|
2015 forecast P/E |
21.1 |
17.7 |
|
2015 forecast yield |
3.1% |
3.1% |
|
2015 forecast earnings per share growth |
39% |
29% |
Both ITV and Moneysupmarket.com have operating margins of around 25% and strong balance sheets.
This means they generate a lot of surplus cash each year, which they’ve been using to fund above-average dividend growth.
ITV’s payout is expected to rise by a whopping 61% to 7.6p this year. Moneysupermarket.com is expected to deliver a 12% dividend hike for 2015.
If you bought your shares for much less than today’s prices, these fast-growing dividends will represent a healthy return on your investment. In my view, these twice-yearly cash payouts also offset the risk of a profit warning, which could cause the shares to lurch lower before you have a chance to sell.
What about takeovers?
Cable firm Liberty Global now owns 9.9% of ITV and has a track record of bold acquisitions. Although Liberty said today that it does not intend to make an offer to acquire ITV in the next six months, it is still free to do so after the six months have expired.
Sit tight and collect the cash
In my view, these firms’ winning streaks could continue for some time yet, during which shareholders will enjoy a continuous run of rising dividends.
Both companies’ shares could continue to climb, too. In my view, it doesn’t make sense to try and call the top by selling. Sitting still and doing nothing could be far more profitable.