They say that nothing is safer than investing in bricks and mortar. Well I believe that buying into the housebuilders could be considered a superior investment on account of their monster dividend yields, and particularly in the wake of recent tax changes governing buy-to-let ownership.
Take Persimmon (LSE: PSN), for instance. In 2018 and 2019, the FTSE 100 company is expected to shell out an annual dividend of 235p per share, a projection that leaves investors lapping up a yield of 9.6%. Where else can you find yields at such eye-popping levels?
Of course, the likes of Persimmon are at high risk of sinking on the back of ever-changing investor sentiment. After the heady share price gains of 2017, the company has taken a severe whack in 2018, illustrating this point perfectly, its market value shrinking by 13% over the past six weeks alone.
Over a long-term time horizon, however, investing in the house constructors has long proved shrewd business. Persimmon itself has more than doubled over the past five years. And I’m expecting its stock value to keep on rising as Britain’s homes shortage looks set to persist, driving profits at the new-build makers ever higher.
Earlier this week, Persimmon announced that “customers are continuing to benefit from a competitive mortgage market and confidence remains resilient based on healthy employment trends and low interest rate,” factors than continue to send demand growth ahead of supply expansion. It declared that profits jumped 13% during January-June to £516.3m, while forward sales of £2.12bn — up 6% year-on-year — underlines the robustness of the market.
City forecasters share my optimism and predict earnings rises of 5% and 3% in 2018 and 2019, respectively. What’s more, these bullish projections leave Persimmon dealing on a forward P/E ratio of 9 times. This is cheap by anyone’s standards, but is particularly so for a stock whose growth outlook remains extremely rosy.
Another Footsie-quoted share I’d be content to buy now and cling onto forever is Reckitt Benckiser Group (LSE: RB).
While many in the market were panicking and selling during the starting months of 2018, I kept the faith and argued that the household goods goliath’s exceptional product stable should see it ride out recent sales troubles.
Latest trading details this month vindicated my positivity. Reckitt Benckiser announcing that like-for-like growth had picked up in the second quarter, rising 4% versus 2% in the three months to March. Net revenues rose 23% to a shade over £3bn, thanks to the acquisition of Mead Johnson last year, and this bright result saw the firm upgrade its full year sales growth targets.
City analysts believe that Reckitt Benckiser’s broad catalogue of market-leading brands, allied with its broad geographic footprint, should pave the way for further profits growth, certainly in the near term. Rises of 3% and 8% are predicted for 2018 and 2019, respectively. And I’m convinced that these factors, allied with the huge investment the firm is making in its well-loved labels, should keep earnings and dividends on the march for many years yet.
Indeed in the next couple of years, payouts of 169.4p and 181.7p per share are anticipated by the City, up from 164.3p last year, and readouts that yield 2.5% and 2.7%, respectively. A forward P/E ratio of 20.3 times isn’t that demanding when you consider the brilliant profits potential that the company’s evergreen product labels provide. I reckon it is, like Persimmon, a top buy right now.
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Royston Wild has no position in any of the 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.