No matter what your views on the property and real estate sector, there’s no denying that after its near-death experience in 2008, the industry has generated some huge returns for investors over the past five years. For the time being at least, it looks as if this trend is set to continue.
There are many different ways to invest in the property sector, but developers such as Crest Nicholson (LSE: CRST) seem to offer the best returns.
Over the past four years, Crest’s profits have ballooned as the company has reaped the rewards of rising home prices. For the fiscal year ending 31 October 2013, the company reported revenues of £525m and a pre-tax profit of £81m. For the fiscal year ending 31 October, analysts have pencilled-in a pre-tax profit for the group of £213m on revenues of just under £1.1bn.
For four years, the company has returned a significant amount of its profits to shareholders every year, after reinvesting in the new development opportunities. Since going public at the beginning of 2013, Crest has returned 68.1p to investors via dividends (102p if you count fiscal 2017’s distribution). This works out at about 26% of the company’s initial IPO price (or 38% if you count the 2017 payout). As long as the UK housing market remains buoyant, analysts expect this trend to continue.
Following an estimated dividend yield of 6.3% for fiscal 2017, analysts have pencilled-in a yield of 7.1% for 2018 off the back of a 12% increase in the payout. At the time of writing this hefty yield also looks cheap as shares in the developer currently trade at a forward P/E of 8.1, falling to 7.3 for 2018.
Galliford Try (LSE: GFRD) is another super-cheap property income champion. Like Crest, over the past five years its profits and revenues have risen sharply with pre-tax profits rising from £63m to £135m between fiscal year-end 30 June 2012 and 30 June 2016. And once again like Crest, the company has returned a huge amount of its income to shareholders during this period. Dividends paid out amount to 270p since 2012, equating to just under 60% of earnings per share over the same period.
As profits continue to roll in, analysts believe the company will continue on its income course. A dividend yield of 8.1% is expected for 2017 followed by 8.6% for 2018. Next year, City analysts expect the company’s earnings per share to hit 169p, indicating that the shares currently trade at a forward P/E of 6.9, which is astoundingly cheap.
Of course, the success of these two developers depends on the state of the UK housing market. If home prices fall significantly, profits will take a hit and dividend payouts may be lower than expected. However, both developers have relatively strong balance sheets and are unlikely to go under if the market slows.
So, it’s certainly worth keeping an eye on these income champions.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.