The latest offerings from the Chancellor George Osborne in his Autumn Statement should be enough to sustain an upward trajectory for UK housebuilders and housebuilding stocks in 2015. The change in stamp duty bands will benefit 98% of home buyers, according to Chancellor Osborne. Only those people wanting to buy homes worth more than £937,000 will pay more in tax, so that is good news for the ordinary Joe — but not so good if you are a high-net-worth individual (HNIW) or an oligarch! So where does this new piece of legislation leave housebuilders and those investors looking to for income in housebuilding stocks? The simple answer is — in a strong position.
Housebuilders like Taylor Wimpey (LSE: TW) and Barratt Developments (LSE: BDEV) will continue to grow from strength to strength in 2015. Both are heading for entry into the FTSE 100 on the next reshuffle on 19 December, with US ratings agency Moody’s Investor Service describing the latest move on UK stamp duty by Chancellor Osborne as a “credit positive” for Taylor Wimpey, as it will benefit those at the lower end of the housing market — this is the housebuilder’s customer base (the average selling price on private completions for the first half of 2014 was £224,000). Taylor Wimpey is also forecasting a strong rise in its dividend for next year to 6.3% (for year ending 31 December 2015), so there is a good opportunity for income.
Barratt Developments has also forecast a strong dividend rise for next year of 4.5% (for year ending 30 June 2015). Despite reporting lower sales in mid-November, Barratt is still on track to hit its full-year targets due to a stable UK housing market.
I also believe that smaller housebuilders occupying the FTSE 250 like Redrow (LSE: RDW) and Bellway (LSE: BWY) will benefit from the aforementioned housebuilders in 2015. Although their dividend increases for next year are not as attractive as Taylor Wimpey’s or Barratt Development’s, they have very attractive valuations that are trading approximately eight and nine times forecast earnings, which backs up the argument for investing in these stocks.
In its last set of annual results in October, Bellway said it expected to deliver volume growth of around 10% in the new financial year based on the record size of its order book. Bellway’s figures also beat expectations, with revenues up 34% to £1.4bn and pre-tax profits up 75% to £246m, ahead of the consensus of £238m. Redrow, in comparison, still reported growth in its last set of results in November, but they did say sales have “reverted to a normal level of activity” after abnormal activity due to the launch of the government’s “Help to Buy” scheme in 2013.