I’m looking for the best dividend stocks to buy today. And right now, I’m consider increasing my exposure to Britain’s housebuilding sector. Predictions of a sharp market slowdown remain way off the mark, meaning that these sorts of UK shares remain top buys, in my book.
Research from Stipendium last week added to the wealth of positive data on the white-hot homes market. This showed the average house price for first-time buyers reach £228,627. That’s up 17% (or £33,000) from pre-pandemic levels.
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There’s a danger that rising interest rates could cause homes demand to cool sharply later in 2022. The growing cost of living crisis could also hit the market hard. However, it’s my view that these dangers are baked into the share price of most housebuilding shares.
A dirt-cheap dividend stock to buy
Take Bellway (LSE: BWY) as an example. This low-cost stock trades on a forward price-to-earnings (P/E) ratio of just 6.3 times. A figure below 10 suggests that a share could be undervalued, relative to its growth prospects, and leaves a particularly-wide margin for error for profits to miss.
Latest trading news from Bellway shows how strongly the UK’s housing market remains. In late March, the business said its revenues and overall reservation rate had risen 3.5% and 5.8% year-on-year respectively in the six months to January.
It also said it remains on course to sell 11,100 homes this financial year (to July). This would represent a 10% rise from last year’s levels.
Profits growth to slow?
City analysts believe that earnings growth at Bellway will slow over the medium term. They think profits will soar an impressive 28% year-on-year in this financial year. And they also predict growth will slow to just 2% in fiscal 2023.
Such projections might deter investors seeking to load up on growth shares. But expectations of further earnings growth means Bellway might still be considered one of the best dividend stocks to buy today.
5%+ dividend yields!
Analysts think Bellway will lift the full-year dividend to 133p per share this year, from 117.5p in financial 2021. They believe the total reward will increase to 144.3p in fiscal 2023 too.
Consequently, yields at Bellway sit at 5.2% and 5.7% for financial 2022 and 2023 respectively. These readings beat the broader average of around 3.5% for UK shares by a very decent margin.
The good news is that it seems Bellway will be able to comfortably make these dividend payments too. Estimated dividends are covered between 2.9 times and 3.1 times by anticipated earnings over the next two years. This is well above the safety watermark of 2 times, and more.
The builder also has a solid balance sheet to help it continue making generous dividend payments (Bellway had net cash of £195.8m on its books, as of January). I think this dividend stock could be too good to miss. Particularly at current prices.