Barratt Developments (LSE: BDEV), Persimmon plc (LSE: PSN) and Taylor Wimpey (LSE: TW) have taken a beating over the past few weeks and may not yet have bottomed out. It’s less than a week to go before the big vote on whether to remain in the EU and just like the remain vote, the chances that these firms’ share prices will rise are hanging on by a thread in the very short term.
For investors seeking capital gains, that near-term future looks tough as the uncertainty of the Brexit vote continues to weigh on the sector. And a leave vote would likely threaten the growth of the UK economy and cause all sorts of uncertainties, some of which havenât been quantified. For housebuilders generally this is a massive worry as a strong UK economy has been one of the integral components driving demand for new homes.
But the longer-term picture seems less bleak. Even if we do vote to leave the EU, these businesses have fundamental strengths that should carry them through. But which do I feel is the strongest of the trio?
Persimmon’s pretty dividend
Although Persimmon’s share price is down close to 3% year-to-date, the housebuilder has been operating in a favourable environment as demand for new homes continue to outstrip supply. Even more pleasing to investors is that Persimmon appears to have carried last year’s momentum into 2016 as a strengthening order book helped increase total forward sales by 8% for the first quarter of 2016, when compared to the previous year.
What’s impressive is that its shareholders are the main beneficiaries of this purple patch of performance as the dividend payout for 2016 has been increased to 110p per share, representing a yield of over 6%.
And if Brexit happens? Investors’ portfolios should fare well with exposure to Persimmon as the underlying fundamentals support continued growth and its current 11 times price-to-earnings multiple is cheap when you consider the strong yield on offer over the next five years. Â
Two Housebuilding stalwarts
Taylor Wimpey and Barratt Developments have long had a place in many investors’ portfolios and it isnât difficult to understand why. Similar to Persimmon, both have been able capitalise on strong demand as buyers continue to benefit from historically low mortgage rates. Importantly, both have made huge strides to meet this increasing demand by expanding their land banks. Taylor Wimpey, in particular, boasts the highest level of plots in its land bank, almost double that of Persimmon.
In terms of yield, Taylor Wimpey comes out on top with a current yield close to 5.8% compared to Barratt Developments’ still-good 5.1% yield. Importantly, for yield investors, Taylor Wimpey will begin to distribute 5% of net assets via an ordinary dividend next year, resulting in a stonking dividend yield of 7.7%.
On current form, all three would make my buy list but Persimmon would be the one to watch as its strong cash flow should support its ability to snap up high quality land, even if the growth path may slow should the leave vote prevail.