Housebuilding stocks are down, including Barratt Developments (LSE: BDEV) shares. Many people already know that.
Higher interest rates for mortgages, a cost-of-living crisis and plunging property prices have all taken their toll on the business activities of housebuilders, leading to lower turnover and profits.
And Barratt Developments languishes at fallen levels along with those of others in the sector such as Persimmon, Taylor Wimpey and Bellway.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
But forward-looking conditions seem set to improve. For example, we may be near the top of the interest-rate-raising cycle. And the rate of inflation has been falling.
Housebuilding companies operate notoriously cyclical businesses and that reflects in their share price charts and financial records. But many stocks in the sector have been consolidating. And I see that as an encouraging sign.
All the many investors taking part in the stock market can collectively be wise. So consolidation in share prices may mean the underlying businesses are stabilising. And investors are now likely looking ahead, beyond current challenges in the industry.
But what are they expecting? My assumption is the sector will see better times. And I’d point to three reasons for investors to consider targeting Barratt Developments for deeper research.
High anticipated dividend yield
The first is the high dividend yield. With the share price near 445p, the forward-looking yield is almost 5% for the trading year to June 2025.
However, there are risks relating to dividends. In early September, the company released its full-year report for the year to June 2023. And the directors cut the total dividend for the year by almost 9%.
Looking ahead, City analysts expect further dividend trimming during the current trading year before a big bounce-back next year. But positive forecasts are not nailed-on certainties.
Positive forecasts
Nevertheless, my second reason for considering Barratt Developments now is the strength of positive forecasts. The current year is likely to be terrible for profits. But analysts have pencilled in a robust 30% bounce-back in earnings for the year to June 2025.
Again, we can’t be certain that these estimates will be met. But most observers expect the current woes of the industry to be in the rear-view mirror by the time of next year’s trading.
And that leads to my third reason for considering the stock now.
The directors’ outlook statement
In September, chairperson Caroline Silver acknowledged that the company faces “significant” macro-economic headwinds. In particularly, the higher interest rate environment is affecting mortgage affordability and availability.
But Silver thinks Barratt Developments is well placed to navigate the challenges because of its “proven operational team, a prudent net cash balance and a solid forward sales position.”
The forward order book and the strong balance sheet provide “resilience and flexibility” to adjust to changes in the operating environment in the year ahead, Silver said.
Investors must make their own judgements when considering an investment here. But I see the stock as worth consideration now.
