Ignore the haters! I think this undervalued, 5%-yielding FTSE 100 dividend stock is a brilliant buy

Royston Wild discusses a cheap FTSE 100 (INDEXFTSE: UKX) dividend hero that could help you to get rich!

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Regular readers will know that I’m quite a fan of the FTSE 100’s cluster of housebuilders.

I love their low valuations which (in my opinion, at least) more than reflect the slim chances of a sharp fall in property prices. I also like their chunky dividends, which make them some of the biggest yielders on the blue-chip index right now. It’s why I count Taylor Wimpey and Barratt Developments amongst two of my favourite investments right now.

Now The Berkeley Group (LSE: BKG) is a builder that shares all of these characteristics, yet I can understand why this Footsie firm may not be to the liking of all investors. Its new-builds can be found predominantly in London and the South East, regions where house prices have stagnated (or even dropped) in response to the ongoing Brexit saga.

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According to Hometrack’s latest UK Cities House Price Index report, property prices in London edged just 0.2% higher year-on-year in January. This compared with house price inflation of 2.9% across all 20 cities on the list.

More specifically, Hometrack cited Aberdeen and Inner London as the weakest housing markets with the longest sales periods and the biggest discounts. In these regions discounts to the asking price average 7%, it said, while the selling time stands at a chubby 16 weeks.

Better news!

Latest trading details released by Berkeley have somewhat exploded the belief that exposure to the capital’s property market should be avoided at all costs.

In a reassuring update late last week it said that “the trading environment… remains consistent with that experienced over the last two years,” soothing fears that homebuyer demand in London was falling through the floor. On top of this, Berkeley said that its updated pre-tax profit guidance for this year, and the next two years, was improved to the tune of 8%. In December the firm said that it was increasing its estimates for the current fiscal period “by at least 5%.”

No-one disputes that the next couple of years won’t throw up some difficulties for the building ace.  This is underlined by City predictions that Berkeley will suffer earnings dips through the next couple of years at least.

Still, given its proven resilience in challenging conditions, I reckon that the builder is worth serious attention at current prices. It trades on a very-attractive forward P/E ratio of 12.3 times, and given that the outlook for the London homes market remains strong in the decades ahead, this represents a great time for long-term investors to grab a slice of the action.

One final thing: at this very moment Berkeley carries a market-bashing prospective dividend yield of 5.1%. Clearly the business isn’t without its risks, but I believe its low valuation and giant dividend make it a great share to consider buying today.

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!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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