FTSE 250 incumbent Grainger (LSE:GRI) is a business that could benefit from the current housing market.
The UK housing market is a complex beast. On one side, the demand for homes is outstripping supply. On the other hand, due to economic issues and interest rates rising, buying a home is arguably harder than ever. Many have therefore turned to renting. Could professional landlord Grainger be a shrewd addition to my holdings? Let’s take a closer look.
Grainger share price in recent months
As a quick reminder, Grainger is one of the largest residential landlords in the UK. It currently rents close to 10,000 homes to over 23,000 people across the country. It designs, constructs, and rents out homes up and down the country. Its current portfolio is worth approximately £3bn with future projects in the pipeline.
So what’s been happening with Grainger shares recently? Well, as I write, they’re trading for 279p. At this time last year, the stock was trading for 295p, which is a 5% drop over a 12-month period. Many FTSE stocks have seen their share prices drop recently due to macroeconomic issues.
FTSE stocks have risks
Recent macroeconomic headwinds have placed pressure on many businesses and this includes landlords. The falling economy has led to a weakened employment market. With people struggling to secure work, there is every chance they may struggle to pay rent. This would affect Grainger’s performance and shareholder returns.
Next, the soaring cost of raw materials and the supply chain crisis could affect Grainger’s growth plans. Construction has been impacted heavily by the issues noted above. There is a real chance Grainger’s future projects could see costs spiral out of control. This could impact its balance sheet, investment viability, and returns.
The bull case and my verdict
So to the positives. Let’s start by looking at Grainger’s performance. I do understand that past performance is not a guarantee of the future. I can see it has a consistent record of revenue and profit generation. Furthermore, when performance dipped in 2020 due the pandemic, it managed to bounce back in 2021 and surpass pre-pandemic levels. FY results for 2022 are due close to the end of this year and I will look out for these.
With sustained positive performance, Grainger is able to return money to shareholders in the form of dividend payments. These dividends boost my passive income stream. Its current dividend yield stands at 2%, which is in line with the FTSE 250 average.
Grainger shares currently look decent value for money too, on a price-to-earnings ratio of just 13. Finally, the current economic picture and housing market lead me to believe that a business like Grainger, with its profile, presence, and experience could prosper.
Right now I would add Grainger shares to my holdings. I do expect the shares to start climbing up sooner rather than later. Full-year results are due in the months ahead and if it manages to surpass 2021 results, I would expect the share price and dividend payments to increase too.