I often spend long periods of my time scouring the FTSE 250 for brilliant dividend shares. Out of the many, many top-class income beauties that you can find on London’s second-tier share index, house-builder Bovis Homes Group (LSE: BVS) is one of my favourites.
Look, I get it, the market remains worried about the economic and political uncertainty that is currently damaging homebuyer confidence, and the consequences for the likes of Bovis. The long-term implications of falling buy-to-let demand, as well as concerns over the future of the government’s Help To Buy purchasing scheme are giving investors plenty to chew over too.
Bullish commentators like myself would bring up two schools of thought, however. Number one: the dirt-cheap valuations of these house-builders, which in the case of Bovis means a forward P/E ratio of 11.8 times, surely bake-in these risks?
And number two: well, the steady stream of trading data coming out of the house-builders doesn’t seem to suggest there’s anything to be frightened about!
Indeed, Bovis’s latest set of financials would have been enough to make even the gloomiest investor smile. It noted last week that pre-tax profit blasted past broker forecasts to rise 41% year-on-year, to £60.2m.
Put simply: there still aren’t enough houses to go around, and this continues to fuel demand for newbuild properties.
Bovis itself saw the number of completions rising 4% in the six months to June, to 1,580 homes, and as of early September’s update it had forward sold 96% of expected completions for 2018. What’s more, the company affirmed that it expects to deliver record profits this year, the business noting that “the market fundamentals remain strong” and that it “continue[s] to see good levels of demand for new homes across all our regions with underlying pricing firm.”
More specifically, Bovis lauded the historically-low interest rates and competitive mortgage market that are all supporting demand, while it also paid tribute to the government’s commitment “to increasing the supply of new homes in the UK reflected in its policy on housing and planning and commitment to Help to Buy.”
The resilience of the home-builders has surprised many a City broker over the past couple of years, and so the number crunchers have been often found boosting their profits forecasts around earnings season. For Bovis this has proved no different, its profits forecasts (which are currently suggestive of a 42% earnings rise in 2018) also receiving upgrades in recent days.
As Bovis’s bottom line booms and cash generation improves — it swung to a net cash position of £42.8m at the 2018 mid-point from net debt of £32.4m a year earlier — the company’s decision to begin forking out special dividends can be fully understood. For 2018 this means that a 102.9p per share payout (also recently upgraded by the Square Mile) is anticipated, meaning that investors can enjoy a gigantic 8.9% yield.
All things considered, I reckon Bovis is a top share that provides plenty of upside at current prices. Given that the country’s supply/demand imbalance is likely to take many, many years to resolve, I think the builder could provide the sort of returns to help investors retire on a fortune.