Every spring, an old stock-market saying appears, regular as clockwork. It is “Sell in May and go away, don’t come back until St Leger’s Day.” Indeed, centuries before the FTSE 100 existed, selling in May was considered a worthwhile and profitable strategy. Why?
Wealthy traders would desert London during the hot, smelly and unhygienic summer months. Thus, stock trading was thin in the heat, causing volatility and sharp price moves. When the rich returned in September, traders reinvested their ‘dry powder’ back into securities, often causing prices to rise.
The FTSE 100 had a marvellous May
And selling in June? Well, after the share price rises in May, some might have felt like selling, even though the trajectory has been generally downwards in the past few days.
May 2020 was a terrific month for UK investors, as markets recovered from late-March lows. After plunging below 5,000 on 23 March, the FTSE 100 soared more than a fifth (22%) to end May at 6,077.
The FTSE 100 kept rising in early June, touching 6,500 last Monday. The index has dived 400 points (6%) since – largely thanks to a 4% fall on Thursday after awful economic figures emerged.
This business is a star performer
Twenty years ago, at the height of the dotcom boom, I bought shares in a great little business called Reckitt Benckiser (LSE: RB). I paid roughly £5 a share and sold most when RB’s share price doubled to £10 within 18 months. This turned out to be one of my worst investment decisions.
Under the stewardship of Bart Becht, its no-nonsense, hard-charging Dutch CEO from 1995 to 2011, RB grew rapidly through acquisitions and organic growth. Today, the consumer-goods manufacturer is worth over £49bn and is a shining star of the FTSE 100.
Had I held onto my RB shares and reinvested my dividends into more shares, I’d have at least 20 times my stake (a 2,000%+ return). How I regret taking that early 100% profit in 2001. Ho hum.
You pay for star quality
Today, RB’s share price is 6,908p – around 14 times what I paid back in spring 2000. Despite the ravages of Covid-19, this FTSE 100 share is up 3.5% over the past 12 months, aided by soaring sales of disinfectant Dettol.
What’s more, RB’s brands cupboard is stuffed with winners in hygiene, health and nutrition. For example, Clearasil spot care, Durex condoms, Finish laundry detergent, Nurofen painkillers and the near-legendary Cillit Bang surface cleanser. Millions of UK homes regularly buy and use RB products. Thus, RB has what billionaire investor Warren Buffett calls a wide ‘competitive moat’.Â
As for RB’s fundamentals, they are all solid and unexciting, which is fine for a FTSE 100 stalwart. The yearly dividend of 174.6p – the latest instalment of which was paid on 28 May – equates to a worthwhile dividend yield of 2.5%.
As for the coronavirus crisis, RB is thriving. Revenues of £3.5bn in the three months to March were up 13.3%, like-for-like. Were heightened personal hygiene to continue until a Covid-19 vaccine is found (and hopefully after), this FTSE 100 firm’s sales will stay strong.
In summary, it’s never too late to buy into a quality FTSE 100 business. Although I regret selling RB shares in 2001, I wouldn’t hesitate to buy them at today’s price. As they say in sports: “Form is temporary, but class is permanent.” And RB is a class act.