A year ago you could have been forgiven for thinking the boom in housebuilding might have been running out of steam — after all, the big builders had already put in a storming few years and their share prices were flying. But if you’d sold out then, you’d have missed some even greater rewards.
A cracking few years
In the past 12 months, shares in Barratt Developments (LSE: BDEV) have climbed by a further 60% to 576p, providing an eight-bagger and then some since the sector’s low in 2011. £1,000 invested in Barratt back then would be worth around £8,500 now, with dividends restarted modestly in 2013.
Bellway (LSE: BWY) has done something similar with a 59% gain in 12 months to 2,227p, though in this case £1,000 would have appreciated to only around £4,100 since the crunch! Bellway kept its dividend going too, so that helped.
How about Taylor Wimpey (LSE: TW)? We’re looking at the best rise of the five over the past 12 months, taking the shares up 70% to 184p today. Since the 2011 dip we’ve had a relatively middling result, with the shares up 530%. Dividends did suffer, but they’re expected to come storming back this year.
Over the past year, Persimmon (LSE: PSN) has managed a mere 36% gain, to 1,862p and has underperformed the others with only a 390% bounce since that 2011 bottom. But in Persimmon’s case, we’ve had special cash payments amounting to an extra 145p per share too, making for a very nice profit.
Our fifth, Redrow (LSE: RDW), is up another 58% in 12 months, to 428p, and has recorded a 290% post-crash climb. Dividends were cut, so it’s the weakest performer here — but it’s still beaten the pants off most sectors.
More to come?
The big question, another year on, is whether these housebuilders have topped out or is there more to come? Well, despite the gains, we’re still looking at very low forward P/E multiples, with all five builders forecast to keep growing their earnings in double digits for this year an next.
In fact, P/E forecasts for 2016 stand at only around 11 for Barratt, Taylor Wimpey and Persimmon, with Bellway’s and Redrow’s around a mere 9! Those are way below the FTSE’s long-term average of approximately 14, but how do they look in relation to dividends? Redrow is only expected to yield 2.2% by 2016 and Bellway’s is unexciting at 3.8% — but the rest are looking better than 5%, reaching as high as 6.4% from Persimmon!
That doesn’t look like an overpriced sector by a long way, and I still rate the housebuilding sector as a strong Buy.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.