UK Markets closed

Buy-to-let’s worth more than 90% of the FTSE 100! But should you buy these dividend stocks instead?

Royston Wild
question marks written reminders tickets

The buy-to-let market in the UK is huge and getting more so. And the numbers from rental app Bunk are there to prove it.

According to the online lettings platform, there are 5.2m tenants across England, Scotland, Wales and Northern Ireland currently renting in the private sector. By multiplying the number of renters in each of these regions with the average rental cost, Bunk calculated that the total UK private rental sector is worth a staggering £51.9bn.

To put this in perspective, that’s more than the gross domestic product of 130 nations. It’s also bigger than the market capitalisation of 90% of the FTSE 100, bigger than some of Britain’s stock market bruisers such as Lloyds (£35.5bn), Vodafone (£39.1bn) and Barclays (£25.5bn).

Company

Market Cap (£bn)

Royal Dutch Shell

189.7

HSBC

128.3

Unilever

127.4

BP

104.4

AstraZeneca

93.6

BHP

89.8

GlaxoSmithKline

83.1

Diageo

80.2

Rio Tinto

71.6

British American Tobacco

68.6

UK Private Rental Sector

51.9

Reckitt Benckiser

42.7

Prudential

39.9

Vodafone

39.1

Relx

37.3

Lloyds

35.5

Compass

32.1

Glencore

30.9

National Grid

28.5

Anglo American

25.6

Barclays

25.5

Don’t be hasty

Impressive data, huh? Well co-founder of Bunk, Tom Woollard, certainly thinks so and is quick to laud “the attractive proposition the buy-to-let sector still presents for landlords despite a number of changes that have dented the profitability of these investments.”

And he believes that buy-to-let still has plenty to offer potential investors. He comments that “with rents increasing and an acute shortage of properties being built for sale and to rent, we will surely see this upward trend climb further in the future.

It’s certainly true that rents are on the march in the UK, but for beleaguered landlords, this doesn’t tell the whole story, as a recent report on buy-to-let confidence shows.

Sure, revenues might be increasing, but so are investor liabilities — take recent hikes in stamp duty, increased regulatory costs related to House of Multiple Occupation (HMO) changes, or unexpected fees brought on by the recent Tenant Fees Act, to name just a few. And the punishing landscape looks set to get ever tougher as Britain’s worsening housing crisis exacerbates government efforts to free up homes by pushing out landlords.

Dirt-cheap dividends!

If it’s a choice between buy-to-let or investing in the FTSE 100, there really is no competition, in my opinion. Indeed, the share price washout of recent days provides a brand new opportunity for investors to nip in and grab a bargain.

Taylor Wimpey and Barratt Developments are a couple of blue-chips I myself own, and fresh falls here leave them dealing on forward P/E ratios of below 9 times. The good news doesn’t end here, either. At current prices, they sport monster prospective dividend yields of 7.3% and 12.3%.

If you’re worried about Brexit, though, and are after some emerging market exposure instead, how about buying up banking Goliath HSBC — with its low earnings multiple of 10 times for 2019 and 7.1% prospective dividend yield — or insurer Prudential and its corresponding readings of 8.5 times and 3.8%?

And for those worried about trans-Pacific trade wars and slowing global economies, there are always classic defensive shares like United Utilities to pick from (an earnings ratio of 13.7 times and a 5.4% dividend yield can be found here). So forget buy-to-let and go shopping on the Footsie, I say.

More reading

Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019