This 7-bagger has just added 50% to its dividend

Bilaal Mohamed discovers a UK housebuilder whose shares have rocketed in recent years.

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In case you’re wondering, a seven-bagger is any investment that appreciates to seven times its original purchase price. So a two-bagger would be where a company’s share price has doubled, in other words achieved a 100% gain. We all live in the hope that our investments will one day turn out to be multi-baggers, but the reality is that very few actually do. Most portfolios tend to be littered with zero-baggers or even negative baggers. Ouch.

600% gain

One common misconception is that multi-baggers can only be found from among the smaller fledgling companies, but this is far from true. The mid-cap FTSE 250 index and even the blue-chip FTSE 100 can quite often yield muti-baggers if given enough time, and patience.

One such company is leading UK housebuilder Redrow (LSE: RDW). With annual revenues hitting record levels of £1.38bn last year and pre-tax profits of £250m, Redrow can hardly be classed as a minnow. But in less than a decade this well-known firm has seen its share price rise from below 64p in 2008 to today’s levels nudging 500p. But of course this is no accident. The Flintshire-based group has achieved uninterrupted year-on-year growth in both its revenues and underlying earnings since 2009.

Record breaker

Last month the FTSE 250-listed firm announced its interim results for the six months to 31 December. The group reported a 23% rise in revenues to a first half record of £739m, with pre-tax profits up by an impressive 35% to £140m, also a new record. The number of legal completions during the period increased 13% to 2,459, adding to the UK’s much-needed supply of new homes. The strong growth has prompted management to hoist the interim dividend by 50% to 6p per share.

I like the fact that the group is always looking for opportunities to expand, last month purchasing Radleigh Homes, a regional housebuilder based in the East Midlands. Radleigh will now form the basis of a new division within the enlarged group. Despite current uncertainties, customer traffic and sales have remained robust, and Redrow has entered the second half of its financial year with a record order book. With a forward P/E ratio of just eight and a rapidly rising dividend, Redrow’s shares look well positioned for long-term growth.

A better alternative?

Another well-known UK housebuilder that’s trading on a very attractive valuation at the moment is Bellway (LSE: BWY). In the six months to the end of January, the Newcastle-based housebuilder posted a 6.5% rise in the number of housing completions to 4,462, compared to 4,188 during the same period a year earlier.

Perhaps more importantly from an investor’s standpoint, Bellway now has a substantial forward order book with a value of £1.12bn comprising 4,487 homes. Geographically, all divisions are performing well, with sales prices and demand in London remaining firm, where there continues to be a significant requirement for affordable homes.

Bellway could perhaps be a better option than Redrow at the moment, with a similar valuation at eight times forward earnings, but a chunkier dividend yield of 4.3%, compared to just 3% for Redrow.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Redrow. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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