There are a handful of stocks in the FTSE 350 that currently support double-digit dividend yields. One firm that stands out is homebuilder Berkeley (LSE: BKG).
Market-beating income
At first glance, shares in Berkeley aren’t particularly attractive from an income perspective. Most financial websites list the stock as having a dividend yield of around 3%.
But this runs contrary to the group’s own statements. Following a robust operating performance in 2019, earlier this year, the homebuilder’s management announced the company would aim to return a record amount of cash to investors over the next 13 to 14 months.
Specifically, the group, which operates primarily in London, Birmingham and around the south of England, is looking to return £500m cash to investors in March. It will payout the same amount in 2021.
As the company’s current market capitalisation is £6.7bn, a £1bn cash return suggests the stock will yield nearly 15% over the next 13 to 14 months.
The company is confident it can meet these cash return projections. Over the past decade, Berkeley has been steadily acquiring an extensive land bank around the country. This gives it a significant development pipeline.
Large projects in the pipeline
For the past few years, the group has been focusing on its London development projects. However, it is now tilting away from high-end London property to focus on i vast land bank.
These substantial land plots can typically deliver between 1,000 and 5,000 homes. But they take time to develop. According to Berkeley, it can take three decades to complete one of these massive developments.
The company is in the process of bringing forward 25 of these residential-led developments. It has started construction on 20 new sites over the past 18 months.
It seems that now construction has begun on so many projects, management has more clarity on the sort of cash resources the organisation will require to finish these developments. Clearly, the group has more cash on hand than it needs, and has decided to return some of this to investors.
Berkeley’s large development pipeline also bodes well for future distributions as well. With these developments in the pipeline, there’s no need for investors to worry about the group’s future growth potential. Management has already stated that it is looking to distribute £280m to investors every year with share buybacks or dividends from March 2021 to September 2025.
The UK housing market is still chronically undersupplied and, as Berkeley continues to build properties, it’s more than likely that they’ll be snapped up by willing buyers.
As such, now could be the time to also snap up shares in this income champion ahead of the group’s first distribution later this year. It appears that Berkeley’s investors are in line to reap big rewards based on the current cash return plans.
