Regular readers will know I’m a big fan of the housebuilders. I bought shares in Barratt Developments and Taylor Wimpey on the back of their big dividends and the chance of sustained earnings growth long into the future, delivered on the back of Britain’s worsening homes shortage.
I’m sure you can imagine my pleasure on Friday with the share price bounce across the entire homes sector. It’s not a surprise following a last-gasp meeting between UK and Irish prime ministers Boris Johnson and Leo Varadkar on the previous day, a summit in which they said that “a pathway to a possible Brexit deal” had been identified.
Countryside Properties (LSE: CSP) is a riser on the back of the news and is up more than 6% as I type. But could the market be overreacting a little here? Possibly. There have been plenty of false starts in the search for a Brexit breakthrough and there remain plenty of pitfalls for any deal between now and the signing of a treaty between UK and European Union lawmakers at the close of the month.
Indeed, Varadkar himself has tried to temper expectations by noting that there is “many a slip between cup and lip, and lots of things that are not in my control,” comments which have seemingly been thrown aside by excited market makers today. It’s quite possible that Countryside and its peers could find themselves trending lower again before too long.
Almost 5% dividend yields
This doesn’t lessen Countryside’s appeal as a brilliant share to buy today, however. Even in the wake of today’s monster price gains, the construction star still changes on a forward P/E ratio of 7.6 times, some way below the bargain-basement watermark of 10 times and below.
Such a reading doesn’t correspond, certainly not in my opinion, with a share that remains in great shape to keep delivering brilliant profits growth (another double-digit annual earnings rise, this time by 10%, is predicted by City analysts for the fiscal year to September 2020).
Countryside, though, isn’t just an appealing pick on the basis of current profits forecasts. With expectations of extra bottom-line growth and strong cash flows come predictions of more dividend increases too, meaning that the FTSE 250 boasts a giant 4.9% yield for fiscal 2019. This beats the UK blue-chip average of 4.5% by a decent margin.
It’s a keeper
Why am I convinced that Countryside is a great stock for the next 10 years at least, though? Well I am buoyed by the fact that, despite Brexit creating the most difficult conditions for the UK housing market for decades, earnings across the sector continue to march steadily skywards.
It’s a reflection of muddled government housebuilding policy, which means that buyer demand, while weaker than that of yesteryear, continues to outstrip supply. Most recent official statistics have shown, in fact, that construction rates in England continue to go backwards, with new-build starts of 37,220 in the three months to June, down a whopping 8% year-on-year.
It’s no wonder that Countryside reported a 17% improvement in its forward order book in the same quarter when it last updated the market in July. And I’m expecting another set of rosy numbers when full-year financials are released on November 21.
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, “10 Steps To Making A Million In The Market”.
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide.
Royston Wild owns shares of Barratt Developments and Taylor Wimpey. 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.