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A cheap nearly penny stock to buy

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I believe getting exposure to the UK housing market is a great investment idea. I already own shares in FTSE 100  housebuilders Taylor Wimpey and Barratt. And I have my eye on a particular nearly penny stock as a way to play the booming rentals sector.

Investing in buy-to-let has been increasingly bad for landlords in the UK. Tax relief has dropped, a raft of new costs (particularly from the Tenant Fees Act introduced in 2019) have come into effect, and property owners also have a huge number of regulatory hoops to jump through.

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That’s not to say that investing in property rentals is a bad idea. For one, home prices in the UK continue to go from strength to strength. And private rents also continue to grow at an eye-popping pace. According to Zoopla, rents outside London jumped 5% during the 12 months to July. This is the biggest leap since the property listings giant started compiling records in 2008.

For these reasons I’d buy shares in Residential Secure Income (LSE: RESI) today. This nearly penny stock has a property portfolio of around 3,100 homes spanning the realms of shared ownership, retirement, and local authority housing.

A perfect stock for uncertain times

I also think Residential Secure Income could be a great buy given the uncertain outlook for the British economy. Global stock markets have taken a smack in recent days as signs of a cooling economic recovery have emerged. Yet this cheap UK share’s focus on the ultra-defensive end of the property market means it should keep growing earnings irrespective of broader economic conditions.

Rent collection at the company remained stable throughout the worst of the Covid-19 crisis last year. And latest financials showed an impressive 99% collection rate in the three months to June.

A nearly penny stock that’s dead cheap

Residential Secure Income isn’t completely without risk of course. Soaring rents and the impact this has on people looking to get on the property ladder has become an increasingly political issue. It’s therefore possible that government action could come later down the line that might harm profits at UK shares like this.

However, I would argue that this former penny stock’s ultra-low share price more than reflects these dangers. City analysts think earnings here will rise 47% in this financial year (to September 2021). Another 21% increase is predicted for the upcoming period. This leaves it trading on an undemanding forward price-to-earnings growth (PEG) ratio of 1.

I also think Residential Secure Income’s a great dividend stock to buy at current prices of 108p. Forecasters expect the UK property share to keep paying total annual dividends of 5p per share over the next couple of years. Consequently the nearly penny stock boasts a 4.6% yield through to the end of financial 2022. This beats the FTSE 100 and FTSE 250 forward averages of 3.4% and 1.8% by a decent margin.

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Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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