One thing housebuilding companies have in common is weak share prices of late, including brownfield developer Berkeley (LSE: BKG).
The firm delivered its full-year results report today (19 June) and the market pushed the stock almost 5% lower in morning trading.
However, that’s just ‘noise’. The business is performing well considering the difficult conditions in the sector. And the company has been rewarding shareholders via dividends and share buybacks.
Decent shareholder returns
For the trading year to 30 April 2024, total ordinary dividends will be worth 92p per share, up from 91p the year before.
That’s modest progress, but Berkley also plans to pay a special dividend of 174p per share in September 2024. On top of that, the firm spent just over £72m buying back its own shares during the year and around £155m the previous year.
Share buyback programmes can be controversial because sometimes companies get carried away and buy back shares when the market has a high valuation on the stock.
However, that doesn’t look like the case with Berkeley. So reducing the share count may be a good thing. The money for dividends will be distributed over fewer shares, which pushes up the payment for each one.
For dividend-hunting investors, I think Berkeley looks attractive. With the share price near 4,802p, the ordinary dividend is yielding in the ballpark of 2%. But adding in special dividends, the anticipated yield jumps to almost 5%.
The company said it’s “on track” to continue with the current shareholder returns programme into the future. However, the intention is to “remain agile” and ready to switch the emphasis to invest in value-accretive opportunities when they arise.
Investing for growth
If the company can’t find ways of investing money to produce risk-adjusted returns, it has the policy of returning surplus capital to shareholders. However, the business now plans to develop its own build-to-rent platform, “alongside its core trading business”. Therefore, from 2027, surplus capital will be allocated to that project.
It’s an “attractive” opportunity to maximise the value of Berkeley’s brownfield regeneration sites, the directors said.
During the year, 87% of the homes built by the business were on regenerated brownfield land. But will the new build-to-rent platform suck money from shareholder returns?
There’s some risk of that. But the project is aimed at enhancing the growth prospects and overall returns of the business. So it may boost returns for shareholders in the long run.
Chief executive Rob Perrins said the company has a clear capital allocation strategy. First, it ensures financial strength reflects the cyclical nature and complexity of brownfield development and is appropriate for the prevailing operating environment. Second, it invests in land and work in progress at the “right” time. Third, it makes returns to shareholders through dividends and share buybacks.
As with all companies in the sector, Berkeley comes with risks for shareholders, not least of which is the fierce cyclicality in homebuilding.
However, on balance, I see the stock as worth further and deeper research with a view to adding some of the shares to a diversified portfolio focused on the long term.
