With the UK’s big FTSE 100 housebuilders attracting attention for their high dividend yields, I can’t help thinking the FTSE 250‘s Redrow (LSE: RDW) has passed under the radar a little.
The company delivered a dividend yield of 5.3% last year, which doesn’t come close to the double-digit yields expected from some of the FTSE 100’s bigger competitors. But if you look at just that alone, you’ll miss the fact that Redrow’s dividend grew from 3.15p per share in 2014 to 29.4p in 2018. Take that, inflation!
Growth
That’s come on the back of a ramping up of earnings per share, from 30p in 2014 to 89.6p last year, a period which saw very low annual PEG ratios not getting higher than 0.3 — the PEG relates P/E to earnings appreciation, with growth investors generally seeing anything under 0.7 as attractive.
Clearly, that’s a rate of growth that cannot continue indefinitely, and it’s already been slowing in today’s tougher climate. But I think it’s built up a strong investment case.
What has the share price done? Over the past two years, just about nothing, though it has more than doubled over five years. And the recent stagnation has left the shares on a P/E multiple of only a little over six, one of the lowest in the sector.
How is Redrow’s business going? Pretty well, I’d say, after the firm reported a “record first half” in February, and proposed the return of £111m in cash to shareholders through a B Share scheme that has since completed.
A 12% rise in completions and a 9% increase in revenue gave a bottom-line 5% boost to earnings per share, and the interim dividend was lifted by 11%. The firm’s order book and ROCE are both nicely ahead of last year.
Fund management
Trusting your savings to investment managers is perhaps not the hottest thing these days, after the troubles that have hit Neil Woodford leading to the suspension of his Equity Income fund. And, to be honest, I’m generally not a fan of that strategy myself.
But owning shares of a fund management company (rather than having them manage your cash directly) can be a whole different prospect. And I’ve always had a liking for Man Group (LSE: EMG), one of the world’s largest quoted hedge fund managers.
Generating cash for shareholders is a key part of Man’s strategy, and it’s been fulfilling that handsomely, shelling out for a dividend yield of 4.4% last year (based on the year-end share price). On top of that, the firm has been returning surplus cash through a share buyback programme too, as the price has fallen considerably since the start of 2018.
That is something that can’t be ignored — the very volatile share price. Earnings per share can be a little erratic too, but I think the company does a good job of evening it out over the longer term and maintaining a steady stream of dividend income.
Man’s investment approach, including its flagship AHL strategy (which the company describes as employing “100% systematic alternative and long-only strategies“) is based on its 30-year experience of computer-based systematic trading.
It helps take the emotion out of investing, and I see Man Group as a likely place for a modest portion of my retirement cash.