I’ve seen some interesting housing figures published in recent days, based on 2019 housing studies. They suggest we have a housing shortage of between 1 million and 1.2 million homes.
EU negotiations could fail and we could hit a recession that depresses mortgage demand. But even then I don’t expect a serious house price slump. And these results definitely reinforce my conviction that there are some great buys among housebuilder stocks.
That thought was boosted further Monday morning by Berkeley Group Holdings (LSE: BKG). Berkeley’s shares are up 39% over the past 12 months, even with the firm’s focus on the more expensive markets of London and the South East. And there’s a 5% dividend on the cards too.
Capital return
But that’s not the end to the rewards Berkeley shareholders can expect. The company has revealed a new capital return plan. Berkeley now intends to return £1bn to shareholders over the next two years, an increase of £455m over previous ambitions.
It is, somewhat confusingly, going to be done via a B share issue and buyback offer in March 2020. The scheme will also entail a 92.69 for 100 consolidation of existing shares. And there will be something similar in March 2021 via a C share scheme. But the bottom line is a £500m return in March 2020, and the same in March 2021.
The shares dipped a little, but that could be partly due to the complexity of the capital return plan. Then again, the whole Footsie is down, so it’s hard to determine what investors are thinking. Whatever the reason, I rate Berkeley Group as a buy
UK’s biggest
Meanwhile, the Taylor Wimpey (LSE: TW) share price is up 35% over 12 months. That’s almost as far as Berkeley’s — though over five years, Berkeley is well ahead of TW, which is the country’s biggest FTSE 100 housebuilder.
Full-year results should be with us on Wednesday. Chief executive Pete Redfern has already told us that “results for the year to 31 December 2019 will be in line with our expectations.” Completions rose by 5% during the year, though the company seems to be sensibly focused on the long term. Redfern added: “In 2019, our focus was on strengthening the long-term sustainability of the business, further improving our build quality and customer offering, as well as increasing operating capacity and flexibility.”
And despite the economic uncertainty and investors’ fears of a housing slowdown, TW says the market remained stable throughout the year.
Cash
The key thing for me is that Taylor Wimpey is also generating cash strongly and is paying handsome dividends to shareholders. The predicted yield for 2019 stands at 7.8% at the moment, and forecasts see that reaching 8% by 2021.
Despite that, I think we could see some share price weakness through 2020. Uncertainty does tend to have a disproportionate impact on housebuilder shares. I guess part of it is that, by their very nature, they don’t offer global diversification the way others do.
So Taylor Wimpey is UK-centric. And that allegedly means it’s risky while we edge a bit closer to Brexit brinkmanship every day. But when investors are fearful, that’s the time to be greedy. It’s another buy for me.
