If you’re looking to grab a bona-fide, big-dividend-paying bargain then you could do a lot worse than to plough your investment cash into Redrow (LSE: RDW).
The uncertainty surrounding Brexit may have put paid to the meteoric home price growth over the past decade or so. And the chances of a disastrous no-deal withdrawal — potentially adding yet a further shock to the housing market — has risen over the past 24 hours following fresh tribal shenanigans in Westminster.
I would argue, though, that Redrow’s forward P/E ratio of 6.6 times is low enough to reflect the risks of an economically-painful Brexit. In fact, I would consider this to be an attractive price given the stability of the homes market despite these difficult times. Indeed, Bank of England data today showed that activity in the mortgage market has remained “broadly stable” and that some 63,793 house purchases, worth an aggregated £11.9bn, were approved in December, broadly flat from the prior month.
Wow! 5%+ yields
It’s no surprise to see mortgage appetite remain strong given the attractive range of loan deals that are tempting first-time buyers to embark on the housing ladder.
So while City analysts expect earnings growth at Redrow to cool sharply as property price growth in the UK stalls, the market still remains strong enough for the number crunchers to predict the FTSE 250 firm’s long history of earnings growth will continue. With rises of 3% for both of the years ending June 2019 and 2020, respectively, I’m confident that the size of the country’s homes shortage means that the bottom line should keep on swelling well into the next decade.
You probably want me to talk about those big dividends I mentioned at the top of the piece. Well, predictions of extra profits growth underpin hopes of more payout hikes, and brokers are currently expecting last year’s 28p per share reward to rise to 30.1p in the current period. This yields a mammoth 5.2%. And for next year, the dial moves to 5.6% thanks to the anticipated 32.4p dividend.
A high Barr
Investors have been charging back into housing stocks again since the turn of 2019 and Redrow’s share price is up by around 20%. If you’re still not convinced by these construction plays, though, then I’d implore you to have a look at AG Barr (LSE: BAG).
The popularity of its drinks such as Irn Bru and Rubicon can be guaranteed in even the most difficult of times for shoppers, making it a reliable growth generator as well as a great dividend raiser. And fresh trading details, in which it advised of another 5% revenues pop in the 12 months to January, underlined the undimming appeal of its beverages.
Brokers, then, expect the firm to follow a 3% profits rise in the outgoing year, with a 5% increase next year. Meanwhile on the dividend front, last year’s 15.55p per share payment is expected to climb to 16.1p in fiscal 2019, and again to 17.1p next year, figures that yield a juicy 2.1% and 2.3%, respectively.
A forward P/E multiple of 23.3 times may be expensive on paper, but I would argue that AG Barr’s brilliant labels, drinks that should keep profits growing long into the future, merit such a premium.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended AG Barr and Redrow. 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.