I’m wondering whether RELX (LSE: REL) might be the best share to buy in September, after last month’s dip has given me a rare chance to add it to my Self-Invested Personal Pension at a lower valuation.
The Anglo-Dutch information and analytics group is an unsung FTSE 100 hero, selling subscription-based data and decision tools to businesses in more than 180 countries. Over five years, the share price has more than doubled, rising 102%, with dividends on top of that. Yet, last month, the stock suddenly dropped 11.69%, leaving it 3.7% lower over 12 months.
That’s a striking reversal for a company that has delivered annualised returns of around 15% for half a decade. The question is whether this is just a temporary pause, or a sign that it’s gone as far as it can.
RELX is a FTSE 100 winner
The August slump followed RELX’s half-year results on 24 July. Yet the numbers were strong. Revenue climbed 7% to £4.74bn while adjusted operating profit rose 9% to £1.65bn. The board lifted the interim dividend by 7% to 19.5p. In my view, there was nothing in that update to justify a sharp sell-off.
It may simply be that expectations were too high. RELX was trading on a price-to-earnings ratio of around 32 at the start of August, leaving little room for disappointment. The slump has trimmed that to 28.7. It’s not cheap, but by its recent high-flying standards, it is that little bit cheaper.
Risks to weigh up
Artificial intelligence is an issue here. When AI first emerged, many feared it could allow clients to replicate services in-house. Then the story switched, as people believed it will help RELX enhance its offerings. It’s too early to know for sure, but I’m wondering whether last month’s talk about an AI bubble may have had an impact on sentiment.
There are other risks too. Corporate spending is cyclical, and if businesses tighten budgets, demand could slow. With inflation and interest rates sticky, that could be an issue for some while yet. Regulatory scrutiny over data use is another factor. And with a market cap of £62bn, sheer scale may limit the speed of future growth. As every good investor knows, no company is risk-free, however strong its track record.
Dividend growth adds appeal
The trailing yield of 1.84% looks modest, but RELX has raised its payout every year this century, apart from a single hold in 2010. Over the last 15 years, dividends have compounded at 7.95 a year, comfortably beating inflation. That makes it a hidden income play as well as a growth stock.
For long-term Stocks and Shares ISA investors, this looks like a high-quality business with strong recurring revenues and dependable dividend growth. I’m now planning to start building a position in my SIPP.
I think RELX is one others investors might consider buying too, with a long-term view.
