Mortgage Advice Bureau (LSE: MAB1) has endured a bad start to 2022 amid heightened fears over rising interest rates. The financial services share has lost 21% of its value since this year’s trading began and was last trading at £11.50.
It’s perhaps unsurprising that investors have been heading for the exits. Even with that recent share price weakness Mortgage Advice Bureau carries a meaty valuation. For 2022 the business trades on a forward price-to-earnings (P/E) ratio of 24.9 times.
Increasing interest rates have the potential to significantly dampen the housing market and, by extension, mortgage activity. If this happens then Mortgage Advice Bureau, with its chunky earnings multiple, could see its share price plummet.
A rock-solid homes market
It’s my opinion, though, that recent share price weakness could represent an attractive dip buying opportunity for me. So far trading news from the firm has remained encouraging and in January it said that “the underlying fundamentals driving levels of consumer demand for housing and mortgage products remain strong”. That’s despite the removal of the Stamp Duty holiday in the second half of 2021.
There’s been a wealth of other data highlighting the robustness of the British homes market too. This week, building society Nationwide said that house prices were up 12.6% year on year in February, speeding up from the 11.2% rise recorded a month earlier.
Fresh trading updates from some of London’s listed housebuilders have also illustrated the resilience of homebuyer demand today. Today Taylor Wimpey declared that “demand for our homes remains strong.” While on Wednesday its FTSE 100 rival Persimmon claimed that “the new year’s trading has started well” and lauded its “robust forward sales position.”
Critically Taylor Wimpey also suggested that homebuyer activity will remain solid even if interest rates rise. The company stated that while “further rises in the base rate are anticipated this year, we expect affordability to remain good and the cost of servicing a mortgage to remain attractive compared to the cost of rental.”
Strong profits and dividend growth on the cards?
My main concern for Mortgage Advice Bureau is that homes supply may fail to match the scale of demand. This imbalance could have an adverse impact on the amount of work it’s required to do.
Yet despite this threat, City analysts expect the company’s earnings to keep growing. Current forecasts suggest profits will soar 22% and 18% in 2022 and 2023. Pleasingly this leads to predictions of spectacular dividend growth as well. Mortgage Advice Bureau is predicted to pay a 34.7p per share dividend in 2022, up from an anticipated 28.4p for last year.
The good news keeps coming too as the full-year payout for 2023 is expected to leap to 40.9p. This drives the dividend yield from a healthy 3% for this year to an improved 3.6% for next year. I think Mortgage Advice Bureau is a great dividend growth share to buy right now. I think it could prove to be a terrific income stock for me for years to come too. I’d buy.
