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This stock has a 6.4% dividend with plenty of room to grow

This month marks the fourth anniversary of Crest Nicholson’s (LSE: CRST) re-listing on the London Stock Exchange. Although that might not sound like it’s worth celebrating, the subsequent performance of this socially responsible British housebuilder certainly is.

£1bn milestone

Since its re-listing in February 2013, the Surrey-based developer has more than doubled its pre-tax profits from £80.9m to £195m, with revenues climbing from £525.7m to £997m over the same period. Perhaps not surprisingly, the group’s share price has followed suit, with a stunning 111% rise from 255p to 537p in just four years. While existing shareholders sit back and revel in their success, we should consider whether the company still offers investment appeal for those yet to claim their stake.

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Last month the FTSE 250-listed housebuilder announced its final results for FY 2016. Management was keen to highlight the fact that the company had achieved its £1bn sales target despite a temporary impact on sales around the time of the EU referendum. The milestone was achieved through a mix of £997m in statutory revenues plus £3.3m in joint ventures, a remarkable 24% improvement on the previous year.

Juicy dividend

Pre-tax profits also came in higher at £195m, a 27% rise from the £154m reported in 2015, with the number of homes delivered up by 5.3% to 2,870. The group remains confident of achieving its target of 4,000 homes and £1.4bn of sales by 2019. Like many housebuilders, Crest Nicholson’s share price took a hammering in the days following the EU referendum, plummeting 43% from 585p to 335p within days of the shock Brexit result. Trading at around 537p, the shares have almost completed their recovery, but are they still good value?

I think they are. With earnings forecast to grow by around 10% in each of the next two years, and a P/E rating of just eight, I think Crest Nicholson is an absolute bargain just waiting to be snapped up. But that’s not all, the shares offer a rising dividend that equates to a juicy 6.4% yield for the current financial year, rising to an even better 7.1% for 2017/18. And with the payouts covered twice by forecast earnings, there’s plenty of room for future growth.

Too cheap to miss

Another London-listed firm that boasts a generous dividend payout is international support services and construction group Interserve (LSE: IRV). Last week the Reading-based firm announced its latest five-year contract win with Network Rail, worth £65m. The group will deliver facilities management services such as waste management, landscaping, pest control, adverse weather management and washroom services across 11 of Network Rail’s managed stations in London, Reading and Bristol. These include eight of the UK’s 10 busiest stations.

Interserve’s shares have been under pressure over the past few years, and now trade on a too-cheap-to-miss P/E rating of just 5.3 for 2017. If that sounds too good to be true then wait until you hear about the dividend. At current depressed levels, the shares offer a chunky 6.5% yield, with payouts covered almost three times by forecast earnings.

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Bilaal Mohamed 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.

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