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Should you sell your shares in Standard Life?
The insurer's soaring share price is now back above its 2006 starting point. So what should you do – take your profits and sell or hold on?
by Gavin Lumsden on Mar 16, 2012 at 11:10
Standard Life (SL.L) shares have soared 35% in the past three months, and are now back above their 2006 flotation price.
After the insurer's 2011 results this week the share price has continued to rise to 251p today, compared with the 230p price they started trading at six years ago.
What should you do if you are one of the 1.2 million people who received free shares as part of the Standard Life demutualisation? Should you take your profits and sell or hold on?
Standard Life, the Edinburgh-based pensions and savings company, released its results for 2011 this week, making this a great time to take stock of its shares.
There is a lot of interest in Standard Life’s results as more than 1.4 million people hold shares in the company following its decision to stop being a policyholder owned mutual and float on the stock market in July 2006.
The company had good news to deliver as it revealed it had increased profits and the dividend payment to shareholders by more than expected.
Now, bear in mind the stock market is always restlessly forward looking. So with this good news in the bag the question is: is it time to take a profit and sell your shares or hold on for more good news to come or even think of buying some more?
In other words is Standard Life a buy, a sell or a hold?
The answer to that question depends on what kind of investor you are. If you have been a recent buyer of the shares, perhaps cannily snapping them up at their year low last August then you have made a 37% gain. If that’s the case, I’d take your profits and sell.
However, if you are one of the vast majority of shareholders who got their shares for free in the 2006 demutualisation I’d hang on and hold.
There are two reasons for this.
Firstly, despite the recent impressive rally, Standard Life shares have only just regained the level at which they started at nearly six years ago. The shares listed at 230p, hit a high of nearly 350p a year later before crashing to a low of 130p during the financial crisis. They now trade at around 240p.
Personally, I think it would be nice when you do sell the shares to do so at a price well above their starting point.
Don’t feel too bad about the share price though. The past few years have been incredibly turbulent on the stock market. Shares in many good companies have had a rough time.
Besides, there is more to a share than its price. Don’t forget the other side of the equation which is the twice yearly dividends Standard Life pays shareholders. Dividends, which are expressed as pence per share, are a really important part of the financial return you can make from shares.
If you include the 9.2p per share dividend Standard Life announced this week, the company has paid shareholders a total of 75p for every share they own since it joined the stock market.
So let’s take an average shareholder. They received around 650 free shares in 2006. These are now worth over £1,500, a bit more than they were six years ago. However, the shareholder has been paid nearly £500 in dividends. That’s around a 33% return on top!
If you don’t need this money you can use the company’s dividend reinvestment facility to buy more shares in Standard Life without having to open your wallet. The compounding effect this will have will improve your returns and offset the ups and downs in the share price.
The second reason for holding on to the shares is that this is a good time for Standard Life. Standard Life’s chief executive David Nish said he was delighted that 2012 had arrived as a lot of the changes the company has made since joining the stock market have been in preparation for events happening this year.
The first change is in company pension schemes, for which Standard Life is the leading provider. Government plans to start auto enrolling workers into company pension schemes from later this year are a big boost for the company and should increase its business.
Standard Life is also well positioned for a second major reform in financial services. At the end of the year the Financial Services Authority is abolishing the payment of commission to financial advisers. Standard Life, which stopped paying commission on new business a few years ago, should find things easier once the new rules are brought in.
All this is set against the backdrop of an increasing awareness by people like you and me that we need to save more for our future. This bodes well for Standard Life and other insurers such as Aviva and Legal & General. So if you are fortunate enough to have shares in Standard Life, I’d hang on and see what happens next.
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by Gavin Lumsden on Sep 30, 2016 at 17:23