A series of strong newsbites from the housing sector have improved my confidence in UK housebuilding stocks. And FTSE 250 stock Bellway (LSE: BWY) in particular looks pretty attractive at current prices.
Last Thursday, building society Halifax announced average residential property prices were soaring at 18-year highs. The 13% year-on-year rise posted in June was also up substantially from the 10.5% increase recorded in May.
On the same day, Persimmon announced its average private weekly sales rose around 1% in the first half. In addition to this, forward sales were up around £50m year-on-year at £1.87bn, prompting the business to hike its full-year profits forecasts.
Sales keep soaring
This all follows recent strong news coming out of Bellway. A little over three weeks ago it said reservations were up 6% between 1 February and 5 June. It also said forward sales were up more than 27% year-on-year at £2.4bn.
I am wary of the potential impact of raw materials shortages on the homebuilder’s profits. Indeed, Persimmon actually scaled back its full-year build forecasts on the back of building product scarcity.
However, this is a risk I think is factored into Bellway’s rock-bottom share price. At £21.40 per share, the FTSE 250 company trades on a price-to-earnings (P/E) ratio of 5.2 times for the outgoing financial year (to July).
7% dividend yields!
I especially like Bellway today because of its credentials as a dividend stock. City analysts think the company will raise the full-year payout to 136.3p per share this year, from 117.5p in financial 2021. And the dividend is expected to increase to 149.1p in the year starting in August too.
Recent share price weakness has sent its subsequent dividend yields soaring. And today, these sit at 6.4% and 7% for this financial year and next year respectively.
I like the fact that these payout forecasts are well-protected by anticipated earnings too. They’re covered between 2.7 times and 3 times over the next two years, comfortably above the minimum safety level of 2 times.
This gives a wide margin of error in case profits fall short of forecast. Also remember that Bellway’s robust balance sheet could give it added financial strength to pay big dividends if earnings disappoint. The company had net cash of £160m as of June.
The verdict
City analysts think annual earnings will rise 30% in the period to end-July before falling 1% next month. This reflects predictions that rising interest rates will dampen demand for new-build homes.
However, it’s my opinion that this forecast could be upgraded as the months progress. Housing data continues to impress and could continue to do so as Britain’s homes shortage drags on. Bellway is a dividend stock that’s packed with investment potential right now.