When most investors go hunting for income, they look to defensive companies like National Grid (LSE: NG) (NYSE: NGG.US). However, a new breed of income stock has just sprung up and many investors are missing out on a great opportunity.
A new breed 
Homebuilders, Persimmon (LSE: PSN) and Berkeley Group (LSE: BKG) now offer a more attractive dividend yield than slow and steady National Grid.
Indeed, thanks to the surge in the demand for new, affordable housing within the UK, homebuilders are seeing their profits explode. For the most part, these profits are being returned to investors and Persimmon, as well as Berkeley are treating their shareholders like kings.
For example, Persimmon announced a strategic plan during 2012 to return £1.9bn to investors, around £6.20 per share, over the next nine years. Due to the improving housing market, however, the company has decided to speed up this cash return. The first two payments of surplus capital, totalling £1.45 per share, or £442m, were made on 28 June 2013 and on 4 July 2014.
The third payment is scheduled for July 2015 and is expected to be around £0.95p per share, for a total of £290m.
All in all, these special payments, and the company’s regular dividend will add up to a dividend yield of 5.8% for this year. Further, the City is predicting a dividend yield of 7.3% for next year. The payout both this year and next will be covered one-and-a-half times by earnings per share.
Persimmon currently trades at a forward P/E of 11.8 and a 2015 P/E of 9.7. So not only is Persimmon a dividend champion but the shares are cheap.
The old guard
Persimmon’s hefty dividend yield and low valuation makes National Grid look really unattractive. Indeed, National Grid’s dividend yield is expected to average 5% over the next two years. The payout is covered one-and-a-half times by earnings.
What’s more, at present levels National Grid looks expensive. The company’s shares are currently trading at a forward P/E ratio of 16.1, falling to 15.3 by 2016.
And it’s not just Persimmon that looks more attractive than National Grid. Berkeley Group has also begun returning impressive amounts of cash to investors and the company now offers one of the best dividend yields around.
Specifically, the City expects that Berkeley’s shares will support a dividend yield of 7.7% next year, followed by a yield of 6% the year after. Analysts believe that these two payouts will be covered between 1.2 and 1.5 times by earnings per share.
In addition, like Persimmon, Berkeley is trading at a bargain basement valuation. Berkeley currently trades at a forward P/E of 11.1 and City analysts believe that this will drop to 10.2 by 2016.
