If you had invested £1,000 into Royal Mail’s IPO, this is what you’d have today

By: Damian Wood
Damian Wood
As an experienced trader, I work for myself managing my own small portfolio and also contributing on several investment… read more.
on Dec 16, 2019
Updated: Apr 15, 2020
  • Royal Mail shares were priced at 330p in 2013 when it was going public and rose to 450p on the first day of trading.
  • But today, the company’s shares have dipped and are trading at about 250p, almost 24% below its IPO price.
  • The firm is hoping to restructure to remain competitive.

Royal Mail (LSE: RMG) was listed on the London Stock Exchange in 2013. At the time, an inquiry was tabled in parliament to determine whether the company’s shares were overly discounted during the issue.

In its IPO, Royal Mail issued each share at 330p but closed off at 450p after a day’s trade. Later on, the firm’s shares jumped to more than 600p.

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 Now, before you get excited, you’ll be worried to note that as at today, Royal Mail’s shares are trading at 250p. Quick math reveals a drop of about 24% from its IPO price and 44% down compared to its first day of trading.

In other words, if you held shares worth £1,000 at the time the company was going public, they’d be worth about £750 today.

But all is not lost for those in possession of Royal Mail’s shares. The company is one of the most generous when it comes to dividend payouts, perhaps compensating its dwindling share price.

Therefore, the only way to look at shares in the entity is as an income investment.

As of this day, the company has paid out dividends totalling to 135.9p per share. If that payout is added to a share price of 240p, the resulting figure is 376p. Meaning, an investor who put his money in the company when it listed six years ago has received a return of 14% during the entire period.

Well, that doesn’t look so good, but at least not disastrous. But for shareholders who paid for the shares after they had soared to more than 400p, they’ve definitely lost money.

Last year, Royal Mail paid a dividend of 25p for each share held, but this year, the ratio is expected to come down to 15.9p per share.

According to experts, the company has minimal automation mechanisms within its operations. Compared to rival companies, Royal Mail is losing a lot of money on processes that ought to be automated.

Sources indicate that the company is putting in place measures to restructure into an efficient entity. Still, organizational politics due to its large workforce has been derailing the plan since a strike threat is never out of the question.

While unions have a right to object to changes that could result in job losses, the truth is that mail communication is dwindling by the day. So if Royal Mail is to survive the next few years, restructuring is inevitable.

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