When it comes to stock investing there’s no such thing as a ‘dead cert’.
Just ask shareholders at Centrica, for example, a utilities giant that used to be adored because of the indispensable nature of its services. Or those over at British American Tobacco, where the pull of its addictive, combustible products is now eroding at an alarming rate. Both FTSE 100 firms have seen their share prices crumble during the past few years and neither are showing any signs of arresting this tailspin.
In the same vein, Barratt Developments (LSE: BDEV) isn’t guaranteed to provide tasty investor returns in the years ahead either. Whether it be the spectre of falling home prices, rising construction costs, or internal problems like the construction issues at Bovis that smacked build rates and thus profits a couple of years ago, there’s no guarantee that it will supply stunning profits growth or gigantic dividends in the years ahead.
Beating forecasts again
All things considered, though, I believe Barratt is as sure a bet as a stock can be, my belief reinforced by fresh trading details released today. The business saw net private reservations per active outlet remain stable at 0.79 per week in the period spanning January 1 to May 5, while total forward sales were 2.4% higher at £3.37bn.
It doesn’t matter that the broader housing market is struggling as homeowners hold off on putting their property on the market, a situation that threatens to persist as the Brexit saga drags on and darkens the political and economic outlook.
There simply aren’t enough homes to go around thanks to the failure of successive governments to turbocharge build rates, driving first-time buyers into the arms of homebuilders like Barratt. What’s more, the current mortgage rate war being fought out by the country’s lenders is giving buyers the help they need to get onto the ladder, as is the Treasury’s Help To Buy purchase scheme.
This is why Barratt chief executive David Thomas said that “trading since the beginning of the year has been strong” and that “the outlook for the year is modestly ahead of our previous expectations.” In particular, the hard work it’s undertaken to boost margins is responsible for the builder upgrading its prior forecasts.
A brilliant buy
City analysts are expecting earnings to rise 5% in the 12 months to June but I’m expecting this, as well as growth estimates for the next fiscal year and possibly beyond, to receive hefty upgrades. And this makes the Footsie firm’s low forward P/E ratio of 8.6 times even more compelling.
Throw giant dividend yields of above 7.5% through to the close of next year into the equation, and I believe Barratt is a compelling ‘buy’ right now. As a shareholder myself I fully expect it to provide me with some stunning income flows in the near term and beyond as that supply shortage in the UK housing market isn’t going anywhere, anytime soon at least. And in the meantime I expect the blue-chip to dole out some delicious returns to its investors.
Royston Wild owns shares of Barratt Developments. 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.