The FTSE 100’s homebuilders are stocks that I’ve championed as some of the most compelling out there.
But the impact of Brexit on the likes of Barratt Developments (LSE: BDEV) shouldn’t be swept under the rug. After all, the stunning home price increases of recent decades have ground to a halt because of the uncertainty over how, and when, the UK will pull out the European Union.
That’s not to say, though, that Barratt and its peers can’t keep grinding out earnings growth year after year, albeit at a slower pace than usual. And this means that dividends should remain on the generous side.
Brexit bounce?
Indeed, City analysts are expecting payouts of 45.4p and 46.1p per share for this fiscal year and next, up from 43.8p last year and underpinned by expectations that profits will rise by low-single-digit percentages through this period. Consequently the builder boasts giant yields of 7.5% for this year and 7.6% for fiscal 2020.
Barratt looks good to meet these forecasts because of the sea of great mortgage products that are encouraging first-time buyers to take the plunge, as well as the lack of existing properties entering the sales market as homeowners hold fire on account of the muddy political and economic outlook, exacerbating the importance of the new-build market.
In fact, or at least according to Rightmove, the latest developments around Brexit could actually help the housing market over the spring and summer months.
The online property advertiser says that it’s quite possible that the homes market could receive a boost on the back of the recent Article 50 extension lasting until October 31 — according to Rightmove director Miles Shipside: “This extension could give hesitating home movers encouragement that there is now a window of relative certainty in uncertain times… We are not anticipating an activity surge, but maybe a wave of relief that releases some pent-up demand to take advantage of static property prices and cheap fixed-rate mortgages.”
Traffic data from Rightmove certainly illustrates the strength of this frustrated demand that exists in the system, the 145m site visits logged in March making last month its busiest ever month. Indeed, the market remains so strong that average home values on Rightmove actually ticked 1.1% higher in March from the previous month, the largest rise for this time of year since 2016.
A cracking keeper
Look, I’m not pretending that Barratt and its peers aren’t without their risks. As well as the home sales uncertainty created by Brexit, a rise in material costs on top of a shortage of skilled labour — a problem that could also worsen should punishing immigration changes affect the flow of foreign workers — is also clouding the company’s profits possibilities in the near term and beyond.
All things considered, however, the environment should remain ripe enough for this Footsie firm and its rivals to continue generating solid-enough earnings growth in the years ahead. It’s why I bought the share in recent years and plan to hold it long into the future.