The investment outlook for housebuilding hulks like Barratt Developments (LSE: BDEV) remains very much up in the air, if recent data is anything to go by.
Just today the Halifax advised that house prices slipped 0.5% in the three months following June’s Brexit referendum, the first quarterly fall since 2012. The average house value stood at £214,140 as of September.
But in cheerier news, the Council of Mortgage Lenders announced today that UK mortgage lending rose 14% month-on-month in September, to £12.2bn, with loans for first-time buyers leaping 13% from August levels. We can clearly reach a very different conclusion on housing demand depending on which gauge we look at.
So rather than look to recent market data for indicators on the health on the housing market — surveys that understandably reflect jittery homebuyer appetite — I believe investors should take a look at the bigger picture concerning the housing market’s supply/demand outlook.
The Bank of England looks set to keep interest rates anchored around record lows to minimise the shock of EU withdrawal on the economy, a positive for those looking to get on the housing ladder. And all of the UK’s major banks continue to slash mortgage costs for homeowners as the price wars heat up.
The City remains in broad agreement that the long-term outlook for the likes of Barratt remains robust, even if the firm is expected to book a 7% earnings decline in the year to June 2017. As such, a dividend of 34.4p per share is currently forecast for the current period, up from 30.7p last year and yielding an outstanding 7.2%.
While dividend coverage may clock in at 1.5 times — below the broadly-considered security benchmark of two times — I reckon Barratt’s huge £592m cash pile should ease any concerns that current projections may disappoint.
Product power
Unlike Barratt, Reckitt Benckiser (LSE: RB) isn’t expected to throw out market-bashing dividends any time soon. But for those seeking guaranteed — not to mention sizeable — yearly dividend expansion, I reckon the household goods giant is hard to beat.
For 2016 the company is expected to generate a dividend of 150.1p per share, a 2% yield lagging the FTSE 100 (INDEXFTSE: UKX) average of 3.5% by some distance. But this marks a vast improvement from the 139p reward last year, and is covered two times by predicted earnings.
Furthermore, the dividend is anticipated to leap to 166.7p in 2017, pushing the yield to 2.3%. And dividend cover matches that of the current year.
And I’m convinced Reckitt Benckiser has what it takes to keep earnings — and with it dividends — ticking higher in the years ahead. The number crunchers have predicted earnings advances of 12% and 11% for 2016 and 2017 alone.
And this momentum looks set to last well into the future, at least in my opinion, as Reckitt Benckiser’s huge product investment scheme delivers explosive sales growth across the globe. The firm saw net revenues rise a chunky 6% during April-June, to £2.3bn, for example, as demand for its premier labels picked up in developed and emerging regions alike.
