The probability that Britain’s housing crisis will persist for years to come encouraged me to take the plunge with Barratt Developments (LSE: BDEV) several years back. A key tenet of successful share investing is to buy shares you’d be happy to hold for around a decade at least, but I reckon this is a blue-chip with top profits-creating potential looking beyond this and into the 2030s.
Government homebuilding strategy has simply not been up to scratch in dealing with the UK homes crunch, as latest data from the Office for National Statistics showed perfectly.
Apparently there were only 60,000 affordable homes either built, bought or rehabilitated in the UK between April 2017 and March 2018, lower than the 62,400-home annual average of the past decade and showing that policymakers have little enthusiasm or gumption to soothe the country’s whopping lack of cheap homes. Indeed, this is the second shocking update in recent days illustrating the prevalence of hand-sitting in Whitehall and shows that lawmakers still have little idea of how to solve the problem.
7%+ dividend yields!
It looks as if Barratt and its peers will continue to benefit from a backcloth of chronic housing shortages well into the next decade, with a growing population and low interest rates driving first-time buyer demand. And this particular FTSE 100 builder aims to grow volumes by between 3% and 5% per year over the medium term to maximise returns in this fertile environment.
So forget about City predictions that Barratt’s earnings will fall 1% in the current fiscal year (to June 2020), I say. Even if rising construction costs and flat home price growth result in a rare bottom-line drop the profits outlook further out remains pretty robust. In my opinion the company’s forward P/E ratio of 8.6 times presents a tantalising opportunity to get in today.
Oh, and one final thing: at current prices, Barratt also boasts a monster 7.3% prospective dividend yield, one which mashes the broader Footsie corresponding average of 4.8%.
Fancy some 9% yields instead?
If you’re on the hunt for homes stocks but want even bigger dividends than this then FTSE 250 stock Bovis Homes Group (LSE: BVS) is where you might want to look.
Unlike Barratt, City analysts expect earnings here to continue rising (and by high single-digits) through the next couple of years, meaning predictions of more supplementary dividends on top of further growth in the ordinary dividend. This means that for 2019 and 2020, yields sit at an enormous 8.9% and 9% respectively,
Coupled with a forward P/E ratio of 10.6 times, Bovis looks too cheap to miss to me, and especially as it takes its own steps to supercharge production. Just today the builder sealed a £1.1bn deal to buy the housing arm of Galliford Try in a move that will allow it to build a whopping 12,000 homes per year over the medium term.
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Royston Wild owns shares of Barratt Developments. The Motley Fool UK has no position in any of the shares mentioned. 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