I think some of the best UK shares to buy now are housebuilders. Most homebuilding stocks are currently trading at a substantial discount and are offering attractive, inflation-busting dividend yields. But like any industry, there are risks. Inflation, interest rate rises which may impact demand for homes, and the ongoing cladding fiasco have continued to weigh on share prices.
Despite the headwinds, I’m confident that demand for houses will stay strong in the UK. Britain has a rising population and governments have repeatedly failed to ensure supply keeps up with demand for homes. Likewise, I think the end of the help-to-buy scheme will be offset by other programmes such as the new government-backed mortgage scheme.
It was also reported on Monday that the government has dropped its demand that housebuilders provide up to £4bn to help leaseholders afflicted by unsafe cladding on their buildings. However, on Tuesday, Crest Nicholson said its new cladding pledge would cost it up to £120m. Persimmon said the pledge would cost them around £75m.
Today I want to look at three housebuilders, two of which I already hold in my portfolio.
Vistry Group
Vistry Group (LSE:VTY) is an attractive passive income opportunity, with plenty of upside potential. I’ve just bought more of the stock as it dropped today ahead of the ex-dividend date on Thursday. Buying in at today’s price, I can expect an annual yield of 6.3%. The dividend has been well covered in recent years.
Vistry reported “excellent progress” in 2021 as completions rose 23.7% to 11,080. This was reflected in pre-tax profits, which rose to £319.5m, exceeding pre-pandemic figures by some distance.
The stock is currently trading at 959p, down from a year high of 1,351p, despite the positive performance data. Vistry currently has a price-to-earning ratio of 7.7, meaning it could be considered cheap.
Barratt Developments
Barratt Developments‘s (LSE:BDEV) pre-tax profit rose to £812.2m in 2021, up from £491.8m in 2020. Its 2021 performance was comparable with pre-pandemic figures, buoyed by a strong property market.
If I were to buy more of this stock today, I could expect a 5.6% dividend yield. The Leicestershire-headquartered firm has maintained a health dividend coverage ratio in recent years. Barratt also has a strong record for paying dividends, sharing yields greater than 4% for four of the past five years.
The stock is down 28% over the past year, suggesting it has plenty of upside potential. Barratt has a price-to-earning ratio of just 8.2.
Taylor Wimpey
Taylor Wimpey (LSE:TW) has seen its share price fall, like other housebuilders, on the back on inflation data and interest rate worries. Today the stock trades at a 25% discount compared to this time last year.
But I think that Taylor Wimpey, as one of Britain’s biggest housebuilders, is well positioned to take advantage of long-term demand for homes in the UK. The firm reiterated in early March that demand has remained strong in the forthcoming year too.
The stock has a similar price-to-earning ratio as the other housebuilders discussed, at 7.2. The attractive dividend yield also makes this a stock that I find tempting. It’s too bad that adding another housebuilder to my portfolio would be excessive.