La
st week the FTSE 100 crashed to a 52-week low, wiping out all of the gains made since the middle of 2013. However, while the FTSE 100 fell, one sector remained in favour and has now outperformed the index over the past 12 months.
The homebuilders have continued to support the market, racking up a strong performance while other sectors struggle.
For example, over the past 12 months Bellway (LSE: BWY), Persimmon (LSE: PSN), Barratt Developments (LSE: BDEV), Taylor Wimpey (LSE: TW) and Bovis Homes (LSE:BVS) have seen their share prices move, 14.8%, 9.7%, 15.9%, 1.8% and -0.5% respectively, compared to the FTSE 100’s loss over the period of -1.3%. These figures are excluding dividends.
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Long-term investing
Over the long-term — 5 years — all of the homebuilders have clocked up even more impressive performances. Some have exceeded the FTSE 100’s performance by around 160% over the period. So, for investors looking for an opportunity to boost portfolio returns in a volatile market, the homebuilders could be the way to go.
What’s more, even after recent gains the homebuilders remain attractive on both valuation and growth metrics.
Indeed, Bellway, which announced full-year results yesterday, currently trades at a forward P/E of 8.3 with earnings growth of 20% expected next year. The company reported that during its 2014 financial year home sales jumped 20%, with revenues rising by a third to £1.5bn, thanks to Britain’s housing market recovery. Profit before tax increased 75% year on year to £246m. At present the company supports a dividend yield of 3.3%.
Income investment
Aside from Bellway, Persimmon and Taylor are two of the most attractive income investments around. As part of Persimmon’s strategic plan to return £1.9bn to investors, management is planning to pay a special dividend of £0.95p per share next year. City analysts reckon that Persimmon’s dividend payouts will equate to a yield of 7.7% during 2015.
Meanwhile, Taylor intends to return £250m, or around 8.1p per share, to investors during 2015. City forecasts are currently predicting that Taylor’s shares will support a dividend yield of 7.4% during 2015.
In addition to these lofty dividend payouts, Taylor and Persimmon look to be undervalued at present levels. Specifically, Taylor currently trades at a forward P/E of 10.5 and Persimmon trades at a forward P/E of 11.1.
Value investing
Barratt and Bovis don’t offer the same kind of dividend yields as Persimmon and Taylor, but they are trading at extremely attractive valuations, which could be too hard to pass up.
For example, Barratt is currently trading at a forward P/E of 8.9 despite the fact that the company’s earnings are expected to jump nearly 40% next year. Further, since 2011 the company’s earnings per share have exploded a staggering 1,055%!
At present, Barrett is only paying out one third of its earnings to investors as a dividend, but this payout ratio is expected to rise to 50% next year, which should give the company’s shares a dividend yield of 5.3%.
Bovis’s growth over the past five years is even more impressive than that of Barratt. This year the company is expected to report earnings per share of 78.1p, which is year-on-year growth of 74%. At the end of 2009 Bovis reported earnings per share of 4.4p, so by next year the group’s earnings per share will have expanded 1,675% over the past six years.
Despite this growth Bovis currently trades at a lowly forward P/E of 8.9 and supports a dividend yield of 4.3%.
