Housebuilder stocks are a great place to look for attractive dividend yields. In fact, Persimmon (LSE:PSN) is the highest-paying stock on the FTSE 100. Buying at today’s price, I could expect a whopping 11% yield from this dividend big hitter. But, other housebuilders, including Crest Nicholson (LSE:CRST), Vistry Group (LSE:VTY), Barratt Developments (LSE:BDEV), Taylor Wimpey (LSE:TW), and Redrow (LSE:RDW) are offering strong yields too. So, which one is the best pick for my portfolio?
Valuations
The share prices of housebuilders have been on a downward track this year amid rising inflation, higher interest rates, and a cost of living crisis. The cost of fixing the cladding crisis has also weighed on share prices. However, this comes on the back of a very strong year for housebuilders. This means we’re seeing some fairly low price-to-earnings (P/E) ratios based on the past year’s earnings.
| Stock | P/E ratio |
| Crest Nicholson | 7.1 |
| Barratt Developments | 7.4 |
| Persimmon | 8.4 |
| Taylor Wimpey | 6.95 |
| Redrow | 6.85 |
| Vistry Group | 6.28 |
While these figures are based on the previous year’s earnings and the current share price, it should be fairly indicative as demand for new homes has remained strong so far this year. Many companies have also noted a strong forward order book.
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Dividends
As discussed, I think housebuilder stocks are a good place to look for strong dividend yields. Here’s how these six companies stack up at today’s prices.
| Stock | Dividend yield |
| Crest Nicholson | 5.6% |
| Barratt Developments | 6% |
| Persimmon | 11% |
| Taylor Wimpey | 6.8% |
| Redrow | 4.8% |
| Vistry Group | 7.45% |
While Persimmon might appear like the clear winner here, it’s important to note that sizeable dividends are not always sustainable. The dividend coverage ratio is a good place to look to see whether a stock can afford to pay its dividend.
| Stock | Dividend coverage ratio (2021) |
| Crest Nicholson | 2.5 |
| Barratt Developments | 2.21 |
| Persimmon | 1.06 |
| Taylor Wimpey | 2.10 |
| Redrow | 3.01 |
| Vistry Group | 2.09 |
The ratio indicates how many times the company can pay its stated dividend from its net income. The data above suggests that Persimmon’s dividend is least sustainable, while Redrow’s dividend is most sustainable. It’s worth noting that the reporting periods for the dividend coverage ratios are do not match perfectly but provide a good idea of the comparative sustainability.
Cladding costs
The government has made housebuilders sign up to a fire safety pledge that sees them put money aside to reclad houses and flats built using dangerous materials. The costs are pretty substantial. The below figures are the most recent provided by housebuilders, combining money already put aside and estimates for future work.
| Stock | Cost of pledge |
| Crest Nicholson | £127m-£167m |
| Barratt Developments | £350m-£400m |
| Persimmon | £75m |
| Taylor Wimpey | £245m |
| Redrow | £200m |
| Vistry Group | £50m-£70m |
Which one is best for my portfolio?
It’s certainly worth noting that there could be downward pressure on the housing market this year and next. And this could further impact share price. However, I feel housing stocks are already quite depressed and I’m bullish on long-term demand for property in the UK.
My top pick is Vistry Group. It beat its pre-pandemic performance but some distance last year and said it was in a strong position for further growth in 2022. Its sizeable dividend is also well covered. I’ve bought Vistry Group shares and would buy more.
