Even as the UK property market takes off, investors’ opinion towards housebuilders has been somewhat similar to that of Mark Twain’s cat and the stove.
Indeed, despite an impressive recovery, strong profit margins and rising dividend payouts, investors appear to be avoiding the housebuilders for fear of a 2008 style property market crash. As a result, Persimmon (LSE: PSN), Taylor Wimpey (LSE: TW), Barratt Developments (LSE: BDEV), Bellway (LSE: BWY) and Bovis Homes (LSE: BVS) are all trading at low valuations and support attractive dividend yields.
Despite investor concerns, the housebuilders are now all in a better position now than they were six or seven years ago. For example, Persimmon, one of the UK’s largest housebuilders, is sitting on a net cash balance, reporting cash and equivalents of £326m at the end of the second quarter, up 580% year on year.
What’s more, the company’s cash balance has grown to this level despite the acquisition of an additional 14,000 new land plots and distributions to investors. Specifically, as part of Persimmon’s strategic plan to return £1.9bn to investors, the company paid two a special dividends totalling £1.45 per share, or £442m, 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. Persimmon currently trades at a forward P/E of 11.8 and a 2015 P/E of 9.7.
Meanwhile, Taylor Wimpey, another one of the UK’s largest housebuilders, intends to return £250m, or around 7.7p per share to investors during 2015. City forecasts are currently predicting that Taylor’s shares will support a dividend yield of 6.7% during 2015. The company currently trades at a 2015 P/E of 8.5.
Moreover, Taylor’s net debt fell to £36m during the first half of this year, down from £68m during the year ago period.
Persimmon is not the only housebuilder that has a net cash balance. Barratt recently reported a year end cash balance of £70m, or around 7p per share.
Like Persimmon and Taylor, Barrett is cheap at current levels. Specifically, the builder trades at a forward P/E of 12.2, set to fall to 8.7 next year. The company currently offers a 2.7% dividend yield.
And finally we have Bellway and Bovis. Bellway’s growth has been nothing short of amazing since 2009. Over the five years since, Bellway’s earnings per share have exploded 750%! What’s more, this growth is set to continue, with the City expecting earnings growth of 68% this year and then 23% during 2015. The company currently trades at a forward P/E of 10.7, set to fall to 8.7 during 2015.
Surprisingly, Bovis’ earnings growth eclipses that of Bellway. Since 2009, Bovis’ earnings per share have risen more than 1,500% and growth is expected to continue on through next year. The City expects earnings growth of 72% this year and then 32% during 2015. The company currently trades at a forward P/E of 11.3, set to fall to 8.6 during 2015.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.