On the July 8 the UK was still reeling from the aftermath of the shock Brexit vote, and investors were left wondering what to do next as ‘uncertainty’ became the most annoying and overused word of the day. This was the day I thought long and hard about Brexit, the UK’s housing shortage, and London-listed housebuilders.
Was I right?
I remember taking a deep breath, and advising readers to go against the advice of others, be brave, and buy a stake in the nation’s largest housebuilder, Barratt Developments (LSE: BDEV). Buy why would I be so Foolish as to go against the herd and recommend a battered FTSE 100 company that could be heavily impacted by the cyclical nature of the UK housing market? And was I right to do so?
Well, it had been exactly two weeks since the result of the EU referendum, and City analysts had been busy revising their earnings estimates for the forthcoming year, and beyond. All of a sudden things didn’t seem so bad, our leading housebuilders weren’t going to stop building and selling houses overnight, and the UK’s housing shortage would surely provide a degree of support for the battered sector.
Record order book
At 373p, Barratt’s shares were trading at a 44% discount to their 2015 peak of 662p, and were supported by a well-covered dividend yielding over 7%. The group’s shares had been hit hard by the Brexit sell-off and were available at a bargain six times forecast earnings. It was time to take action and buy. Nine months later, investors now find themselves sitting on healthy gains of around 55%.
I think the shares could well be worth hanging onto. Barratt’s half-year report suggested a very positive outlook given the record forward order book, strong consumer demand and a positive lending backdrop. The Coalville-based developer reported that completions outside the capital were now at their highest level for nine years, with completions in London in line with the planned build programme, with significant uplift expected on wholly owned sites in the second half.
I believe Barratt continues to offer a great blend of growth and income, with an attractive valuation at just 10 times earnings for FY 2017, supported by a prospective dividend yield of 7%.
Meanwhile, at the other end of the market, a company that I believe could provide even more dividend and share price growth is Norcros (LSE: NXR). The Wilmslow-based group is a leading supplier of high quality and innovative showers, taps, bathroom accessories, ceramic wall and floor tiles and adhesive products, with operations primarily in the UK and South Africa.
In a trading update issued just last week, management indicated that revenues for the year just ended were now expected to be in the region of £271m. That’s 14.9% higher than fiscal 2016.
Norcros now expects to deliver its eighth consecutive year of revenue and underlying operating profit growth. With rapidly rising dividend payouts, a prospective yield of 5.6%, and a P/E rating of just six, I believe Norcros could provide an exciting mix of dividend and share price growth over the coming years.