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I’d buy these 2 FTSE 100 dividend heroes after Boris Johnson’s landslide win

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Stock markets are soaring today as investors welcome Conservative Party leader Boris Johnson’s surprise 80-seat landslide victory, which should put an end to the apparently interminable uncertainty dogging the UK, if nothing else.

Double-digit spike

The FTSE 100 is up 1.67% at time of writing, but some stocks on the index are doing dramatically better, notably in the housebuilding sector.

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At time of writing, the UK’s largest housebuilder Barratt Developments (LSE: BDEV) is up 11.7%, while Taylor Wimpey (LSE: TW) has jumped a stonking 14.22%. These aren’t the only two flying today, with Persimmon up 11.26% and Bovis Homes Group up 8.26%.

None have come out with any news, updates or reports, it is all down to the election victory.

Housebuilders are influenced by political events more than almost any other major investment sector. Remember how they collapsed after the shock Brexit result in 2016? They took a real hammering as investors fled in fear of what might happen following the vote.

The assumption then was that Brexit would hit the UK economy hard, and domestic-focused stocks would be hit hardest of all. Other major FTSE 100 stocks have a lot more ballast, given that Britain’s blue-chips generate three-quarters of their earnings overseas. They benefited from the post-referendum slump in the pound, as those earnings were worth much more once converted back into sterling.

The housebuilders had no such protection. They build nearly all their homes in the UK.

Uncertain times lie ahead

Yet it is ironic that they are rising so strongly today, given that Britain is now on a fast track to leave the EU, and we still don’t know what will happen to the economy when we actually do exit. But at least investors have greater certainty over the direction of travel.

I have been a big supporter of Barratt and Taylor Wimpey as an investment for some time. I always felt they were hit unfairly hard by the post-referendum collapse, which left them trading at lowly valuations while offering massive dividends.

In September, I said Barratt was a real bargain, trading at 8.8 times forward earnings, despite posting a 9% increase in full-year profits before tax to £909.8m. The Barratt share price still looks a bargain today, trading at 9.2 times earnings, while the dividend yield is still solid at 6.9%, covered 1.6 times by earnings. Operating margins are 19.1%.

These are massive yields

Similarly, in October I noted that Taylor Wimpey was paying the second-highest yield on the FTSE 100, a forecast 11.9%. I predicted that it would swing back into favour as no-deal prospects diminished. At the time, it had just reported a marginal dip in first-half profits before tax from £301m to £299.8m, while boasting net cash of £392m.

I think the Taylor Wimpey share price is still a buy today, trading at 8.7 times forward earnings and yielding a forecast 10.4%, albeit with narrow cover of 1.1.

I always resist jumping in after a massive spike like this one, because profit-takers quickly emerge, and the price is likely to retreat in the hours ahead, when everybody calms down.

I see both as a buy, though. I have backed the housebuilders for a long time, I’m not stopping now.

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Harvey Jones has no position in any of the shares mentioned. 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.

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