Ibstock’s (LSE: IBST) a share I happily bought for my personal Stocks and Shares ISA a couple of years back. I bought it on the back of its above-average dividend yields and its policy of supercharging annual dividends (up 75% in 2016 following its IPO in October the year before).
You can imagine my joy, then, when the brickbuilder hiked the full-year dividend almost a fifth for the 2017 fiscal year and announced it would begin shelling out supplementary dividends too.
I’m delighted to say it looks like Ibstock will keep rewarding shareholders handsomely. The boffins at UBS are betting on a total reward of 16.4p per share for 2019, up from 16p last year, and yielding a mighty 7%.
What’s more, the bank expects annual rewards to rise relentlessly through to 2023 at least.
Balance sheet brilliance
It’s easy to see why UBS is just one of the forecasters expecting Ibstock to continue raising dividends, even though its near-term dividend prediction looks pretty fragile on paper — this is covered a mere 1.2 times by anticipated earnings for 2019.
Look past this reading, though, I’d say. Having coverage of 2 times or above is a useful indicator of future dividends. But it’s by no means a foolproof way of assessing a stock’s dividend prospects. Indeed for Ibstock, share investors can take immense consolation in the robustness of its balance sheet and, consequently, its ability to make good on City estimates.
The company’s a cash machine, put simply. In 2018, adjusted free cash flow boomed 10% to £65m and this allowed net debt to EBITDA to fall to 0.4 times, from 1 times the year before. Clearly Ibstock has plenty of financial headroom to keep investing for growth and to continue rewarding investors with big dividends.
Build rates to boom
So why am I confident the FTSE 250 firm can keep delivering big returns up until I retire? The colossal size of the UK’s homes shortage and the huge amount of building that needs to happen in the years ahead to soothe this, that’s why.
A government report released late last year suggested a whopping 240,000-340,000 new homes need to be built every year, reflecting a blend of rising homeowner demand and the poor build rates we’ve seen in recent years.
It’s obvious that Ibstock’s position as the country’s largest brickbuilder puts it in pole position to ride this wave. Indeed, with the opening of its gargantuan new factory in Leicestershire last year — one which has a jaw-dropping capacity of 100m bricks per annum — it really has the tools to create some terrific profits growth looking ahead.
The experts at UBS certainly expect profits to keep rising over the next five years. And yet the business still trades on a dirt-cheap forward P/E ratio of 12.1 times.
I consider it to be a bargain, then, and a brilliant buy for those looking to retire on a fortune.
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Royston Wild owns shares of Ibstock. The Motley Fool UK has recommended Ibstock. 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.