Redrow (LSE: RDW) is one of a number of income stocks on my radar at the start of this new year. It could help boost my portfolio today. Plus, with the talk of interest rates falling, sentiment, performance and payouts could be set to climb for the future too. Let’s dig deeper into Redrow shares.
Leading house builder
Redrow is one of the largest house builders in the UK and has over 50 years experience under its belt.
It must be noted that the housing and house building market has been volatile since macroeconomic issues began early last year. Soaring costs and higher interest rates have dampened both markets. Firms like Redrow have completed fewer properties and also sold less too.
As I write, Redrow shares are trading for 598p. At this time last year, the shares were trading for 483p, which is a 23% increase over a 12-month period.
Current outlook and future prospects
Let’s start with Redrow’s most recent performance update. This came in the form of a full-year report posted in September for the year ended 2 July 2023. It made for decent reading despite the economic turbulence, in my opinion.
Revenue was pretty much at the same level as the year prior. Completions dropped by 5% but this was to be expected. The business still reported a decent profit, and paid a dividend. Crucially for me, it reported healthy cash generation. This is great to help during volatile times and maintain returns.
Speaking of returns, a dividend yield of 5% is attractive, especially as it looks well covered. However, it’s worth remembering that dividends are never guaranteed. Redrow shares also look excellent value for money on a price-to-earnings ratio of seven.
Looking forward, Redrow – and other house builders – could be set to see some normality in the coming months and years. This is if interest and mortgage rates come down. The Bank of England did not increase the base rate in its last update, and some mortgage lenders are already cutting rates. With inflation also coming down, there could be an opportunity for completions, sales, performance, and payouts to rise in the medium to long-term.
Risks to bear in mind and my verdict
The biggest issue for me right now is the current macroeconomic malaise we find ourselves in. Despite positive signs, there are no concrete assurances of rates coming down, and inflation could yet creep back up. This could continue to hurt Redrow and its performance, which underpins returns.
The current cost-of-living crisis could also continue to hurt Redrow. Consumers are struggling with higher food and energy prices. Even if Redrow can complete more homes at a cheaper price, fewer buyers could hurt its performance and return levels.
Overall, I reckon the fact that demand for housing is outstripping supply by some distance is good news for Redrow. This could help performance and payouts in the longer term, although I’m aware there are some stormy waters to navigate first. From a passive income perspective, if I had some investable cash, I’d be willing to buy Redrow shares.
