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Why I back these 2 FTSE 100 shares to build wealth!

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Models of houses on top of pound coins
Image source: Getty Images.

Everyone would like their bank balance to sky-rocket, and buying shares can be a sure-fire way to do so. Now let’s take a look at two FTSE 100 shares that are interesting prospects to grow your wealth.

In the news, housebuilder Persimmon (LSE: PSN) seems to me to be one of the most interesting prospects in the major UK index. The fundamental metrics seem to indicate a cracking deal with a bargain basement price-to-earnings (P/E) ratio of just 6.67. The dividend yield is huge too, coming in at 12.55%, and has been held steady at 125p for the last two years.

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It’s pretty rare to find a company that has consistently seen its profits grow over the past five years, but Persimmon has done just that. There has been a steady climb from £372 million in 2014 to £886.4 million in 2018.

So why does the share appear so cheap?

Brexit and customer complaints

The spectre of Brexit seems to have haunted all housing shares, with practically every company mentioning the ‘B’ word in their trading statements. And share investors will remember just how hard housebuilders fell following the Leave vote in 2016. However, I believe we are on the final stage of the Brexit journey, and think there is a good chance Britain will leave by 31st October 2019. Either way, with immigration constantly rising year on year, and more single-person households, there remains a structural demand for more housing.

Now on to the issue of customer complaints, and this seems to be more worrying. There seem to be hundreds of homeowners complaining about ‘snagging issues’ in their homes, such as cracked window frames. This has generated plenty of negative publicity and newspaper articles.

In contrast to this, I have seen some positive reviews and actually have visited some newly built Persimmon homes a few miles from where I live. Upon a quick inspection (with pictures), they do seem to be in reasonable condition.

So despite these two fears, one of which I would describe as negative sentiment, I would rate Persimmon a buy around its current level of 1,877p for the great yield.

Barratt Developments (LSE: BDEV) is Britain’s biggest housebuilder. Again the fundamentals look attractive here, with a cheap P/E of 8.59. The dividend yield is good at 4.6%, yet this doesn’t tell the whole story. For both 2017 and 2018 the company paid a special dividend of 17.3p, and if this is maintained then the potential yield is well over 5.5%. The dividend cover is very good at 2.51, so the company has plenty of scope to continue paying this special dividend as it sees fit.

The trading statement released on 10th July 2019 gives further cause for optimism. Operating margins are now at 18.9% and profit before tax is expected to beat market expectations at around £910 million.

Overall, I would rate Barratt Developments as a strong hold at its current price of 575p at the time of writing. There is perhaps a slight concern over the selling prices of its London properties, yet there could well be an opportunity for canny investors to buy in the future.

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Neither Mark nor The Motley Fool UK have a 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.

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