With the shortest day of the year fast approaching, many investors’ minds will be turning to 2020 and the investments that might be well-placed to excel. Looking at those industries that have struggled during 2019 might serve as a good starting point. Car insurers have been hit by changes to the Ogden rate, which have forced them to pay more to customers claiming against their insurance. Housebuilders have been hit by Brexit uncertainty and the end of Help To Buy in the coming years.
A cheap industry, a cheap company
Like other motor-focused insurers, Hastings has been hit by government changes to that Ogden rate. As mentioned, this has pushed up the amount they have had to pay out and has directly hit profits and negatively affected investor appetite for pouring money into UK-focused insurers.
For income-focused investors, I think there is an opportunity as a result of this. Hastings now has a dividend yield of over 7%. At this elevated rate, it should be expected that the rate of dividend growth will slow down or even flatline. But the dividend has risen strongly in recent years, from 9.9p to 13.5p between 2016 and 2018.
The shares are also cheap, trading on a P/E of around eight. This is around the same as a comparable company like Direct Line and indicates that the wider industry is out of favour currently, rather than Hastings doing anything wrong itself.
Given that external factors – namely the Ogden rate – have been responsible for a poor 2019, I’d expect that 2020 could be a much better year for the insurer and with a high dividend yield, there’s much to like about the shares.
Housebuilders: unloved but resilient
Alongside Brexit concerns, higher wages for staff, controversies in the sector over workmanship and executive pay, and the looming threat of the end of Help to Buy, there’s been a perfect storm hitting investor confidence in the sector.
This means sector shares look cheap now, especially in Redrow, which trades on a P/E of below seven, indicating that the shares are very cheap currently. This is surprising given the good performance of the company – which is why I think it’s a good opportunity. Just this month, Redrow said trading remained “encouragingly resilient”. The housebuilder has also revealed that the value of net private reservations in the first 18 weeks to 1 November – excluding a £119.5m private rented sector sale at Colindale Gardens – was 2% ahead of last year at £598m.
With demand for housing remaining strong, despite the apparent headwinds the housing industry faces, I expect Redrow to keep doing well and rewarding investors.
Including special dividends, it yields around 10%, so offers a compelling combination of a cheap share price and a high income. This is why I fully expect the shares to outperform the wider stock market in 2020 – regardless of what threats Brexit poses to the sector.
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Andy Ross owns shares in Redrow. The Motley Fool UK has recommended 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.