Many housebuilding stocks have come under pressure recently due to macroeconomic headwinds. FTSE 250 incumbent Redrow (LSE:RDW) is no exception. My investment strategy has always been to buy and hold for the long term. With that in mind, should I buy Redrow shares for longer-term growth and returns? Let’s take a closer look.
Redrow shares continue to fall
As a quick reminder, Redrow is one of the biggest housebuilders in the UK. Initially starting as a commercial developer, it changed to building homes in 1980. At present, the Welsh-based firm has over 14 operational divisions throughout the UK with numerous developments and employs over 2,000 people.
So what’s happening with Redrow shares currently? Well, as I write, they’re trading for 478p. At this time last year, the stock was trading for 681p, which is a 29% decline over a 12-month period. Many UK shares have fallen in recent times due to macroeconomic issues such as soaring inflation, rising costs, and the supply chain crisis.
Risks to note
I believe Redrow shares have fallen due to the issues noted above. Furthermore, they could experience further pressure as there is no end in sight for these factors. Rising costs could put pressure on profit margins, which often underpin returns in the form of dividends. Supply chain issues could affect operations and sales. Another negative is rising interest rates, which are being employed to combat rising inflation. This will make homes harder for consumers to purchase due to higher mortgage rates, and could affect short-term demand.
Finally, housebuilders are traditionally seen as good income stocks. I am conscious that dividends are never guaranteed. They can be cancelled at any time to conserve cash in the face of economic volatility, a bit like now. I will keep an eye on Redrow’s dividend.
The bull case and my verdict
So to the positives then. Firstly, I believe Redrow will benefit from the state of the current housing market in the UK. Demand for homes is outstripping supply by a fair margin. With this in mind, I believe Redrow should be able to leverage this demand into growing performance and ultimately, returns for its shareholders.
Next, at current levels, Redrow shares look great value for money on a price-to-earnings ratio of just 6. There is a consensus that a ratio of 15 and under represents a potential bargain on the surface of things.
As well as cheap shares, Redrow would boost my passive income stream too. The current dividend yield stands at just over 6%. This is three times the FTSE 250 average of 1.9%.
Overall I believe Redrow could be a good stock to boost my holdings for the long term. I am conscious of the current headwinds and expect the shares to experience some volatility. To summarise, a burgeoning market, rising demand, the passive income opportunity, and current cheap shares help me make my decision.