Is it time to ditch the shares you love most?

Every investor has one – that stock that you’ve owned for ever.

Maybe it was the first share you bought, or the first success story you invested in. Maybe you inherited the shares from a family member, have fond memories of working for the company, or you’ve just come to rely on it over the years for a steady dividend payment.

But research shows that many of these much-loved holdings might not be paying their way any more.

Here we look at some of the most common reasons people loyally hold shares for the long haul – and why they might not be worth it.

VODAFONE

MYTH: It provides a good income There’s little doubt vodafone’s dividend payments have been wonderful for investors. But earnings per share at vodafone this year is expected to be just 4.9p, the worst since 2002.

Optimists argue that sales of 4G mobile phone tariffs will boost earnings and that a dividend of more than 5pc is a solid base.

But russ Mould, investment director at AJ Bell, says: ‘Barely half of that yield is covered by earnings. vodafone will also, at some stage, need to invest in 5G networks which will eat into cash flow and limit any dividend or earnings growth.’

The telecoms provider’s spending is already high – some £20bn was earmarked for investment between 2013 and 2017 to improve coverage across europe, which understandably hit the firm’s balance sheet.

Simon McGarry, senior analyst at Canaccord Genuity Wealth Management, says: ‘The last time vodafone’s earnings were greater than its dividend payout was in 2014 – it’s not a sustainable model.

‘And in the past five years vodafone has grown its dividend a total of just 3.6pc. We don’t think it’s a secure dividend stock.’

REALITY: The dividend is OK, but it is not fully covered and it may not grow much more.

MARKS & SPENCER

MYTH: Its food business is growing, so the share price must follow Marks & Spencer has been struggling to get to grips with its womenswear division for several years now.

A move to high-fashion items and tie-ups with celebrities didn’t work and the firm has repeatedly relaunched and revamped its clothing line. In the latest of several restructure plans, boss Steve rowe promised a return to the retailer’s core customer, with a plan to focus on high-quality basics and wardrobe stalwarts.

yet whenever M&S takes a tumble investors are quick to point out the success of its food business. True, the division does now account for more than half of sales, but the firm’s overall pre-tax profits slipped 18.5pc in the year to April 2.

If M&S can’t get the basics right, food won’t be enough.

McGarry says: ‘Investors need to take off their rosetinted spectacles when it comes to dear old M&S. And they certainly shouldn’t apply the nice growth story of the food business across the rest of the company.’

REALITY: Far from a growth stock, Marks’s share price has tumbled almost 40pc, from 581p to 367p over the past year.

TESCO

MYTH: It was a market leader and it will be again Tesco led the way in the supermarket world for many years. Where it went, others followed – mostly to large out-of-town retail parks.

Many experts think an attempt to crack the Asian market signalled the start of the giant’s downfall. Others would point to a recession and a horsemeat scandal.

And then, of course, the consumers did what Tesco hadn’t banked on: they changed their behaviour.

Shoppers wanted smaller stores, lower prices and higher quality. They stopped doing a big weekly shop and started doing small topups instead. Tesco wasn’t a leader in any of those areas.

Loyalists think the supermarket king will one day rule again.

Sceptics say the discounters are not going anywhere, margins are being eaten away and food inflation is anaemic.

REALITY: Tesco still holds the highest market share among its rivals – around 15.8pc, according to the latest Kantar Worldpanel figures – but it is almost half its peak of 31.8pc, and falling.

When deciding whether or not to ditch a stock there are a few key areas to look at: how secure is the dividend, how strong is the balance sheet, and how strong are returns.

McGarry says: ‘It is important to identify companies where the investment story has gone stale, growth has died or disruptive new firms have emerged. And if you identify one, remove them ruthlessly from your portfolio.’