The market remains quite apathetic towards Britain’s housing market, and that comes as something of a mystery to me.
Look, I’m not blind and can understand how tales of nosediving property values in London are having something of an impact on investor appetite for the likes of Redrow (LSE: RDW). However, while homes demand in the capital may be waning amid accusations of inflated price growth for some decades now, aggregated demand across the country continues to hold up quite well.
While a weakening domestic economy is sapping homebuyer activity to some extent, a combination of low interest rates and the government’s Help To Buy purchasing scheme for first-time buyers is keeping buying activity on the burner.
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And for Redrow, a shortage of available properties on the market — created by inadequate decades-old government housing policy and, more recently, a reluctance of existing homeowners to put their homes on the market given current political and economic uncertainty — is still driving demand for its new-builds.
Profits set to keep rising!
A generation of breakneck property price growth may be consigned to history, and this, combined with the pressures created by a rising cost base, is likely to see earnings at Redrow moderate from the colossal rises of previous years.
But this is not to say that profits growth for the FTSE 250 business will grind to a halt. Far from it. Indeed, City brokers are still expecting the construction ace to report earnings expansion of 14% and 9% for the years ending June 2018 and 2019 respectively.
And this, combined with Redrow’s vigorous balance sheet — net debt more than halved in the six months to December, to £35m — is expected to keep dividends rising at quite a pace. Payouts swelled from 1p per share in fiscal 2013 to 17p five years later, and further improvement, to 24.2p in fiscal 2018 and 28.5p next year is forecast by the number crunchers.
Yields for this year subsequently stand at a mountainous 4.1% and 4.8% respectively. While Redrow isn’t without its problems thanks to the tense trading environment, this is more than reflected in its forward P/E ratio of 6.8 times, in my opinion.
Another big yielder
Ashmore Group (LSE: ASHM) is another great buy for income chasers, I believe.
In spite of an anticipated 14% earnings dip in the 12 months to June 2018, the emerging markets asset manager is still predicted to raise the dividend from 16.65p per share last year to 16.9p. And next year, helped by an anticipated 13% profits recovery, Ashmore is expected to raise the dividend again to 17.3p.
Consequently yields clock in at a punchy 4.4% and 4.5% for fiscal 2018 and 2019 respectively.
A prospective P/E rating of 15.8 times for the upcoming fiscal period may be less tasty, but this is a small price to pay given that long-term appetite for stocks with developing market exposure should remain significant and thus keep business activity at Ashmore ticking over — the firm’s latest trading statement showed assets under management booming $7bn during January-March, with net inflows standing at $6.4bn.
