I recently took a look at St Modwen Properties and explained why the holy trinity of great dividends, soaring profits and brilliant value make it a brilliant buy for ISA investors for 2020. And I’m happy to heap the same praise on Irish housebuilder Cairn Homes (LSE: CRN) today.
House construction is stalling
Much has been made of the colossal homes shortage in the UK, a problem which is just as pressing on the other side of the Irish Sea. A fresh report from the Central Bank this week underlined the extent of the problem when it declared that 34,000 new dwellings will be needed each year over the next 10 years if net inward migration comes in at around 30,000 people per annum.
The chances of this building target being met stand at somewhere between slim to none, at least if recent construction data is anything to go by. The bank estimates that some 27,000 new homes were required each year between 2011 and 2019 but that an inadequate 10,500 were actually built over this period. Even this year’s projected 21,000 new homes falls woefully short of this target.
Even if net inward migration were to plummet to 10,000 people a year, Central Bank estimates suggest that 23,000 new homes will still be needed per annum, a figure that also outstrips current build rates.
The dividend rush?
Against this backcloth, Cairn Homes has seen profits explode in recent times. And judging by most recent trading details, things still look pretty rosy for the Dublin-based business.
Revenues and operating profits surged 48% and 11% respectively in the six months to June. It sold 390 homes in the period versus 293 in the same 2018 period, while average selling prices also improved to €449,000 from €393,000 previously, thanks in part to property sales at its Six Hanover Quay development. And to cap things off, operating margins rose by 30 basis points year-on-year to 14.2%.
So strong was the performance that Cairn felt confident to pay its first-ever interim dividend of 2.5 euro cents per share. It’s quite likely that investors can expect a rush of income from the mid-cap in the years ahead on the back of its strong profits prospect and its breathtaking cash generation. The builder has reported cash generation from operations of €44.7m versus a cash outflow of €9.3m a year earlier.
5%+ dividend yields!
City analysts are certainly optimistic over probable dividend levels at Cairn, both in the near term and in 2020. They are anticipating full-year payouts of 6 euro cents per share in 2019 and 7 cents next year, figures that yield a chubby 5% and 5.8% respectively.
These estimates are underpinned by predictions that profits will swell 54% this year and by another 27% in 2020, figures that also leave Cairn dealing on a mega-cheap P/E ratio of 13.4 times for next year. All things considered, I reckon Cairn is a corking income hero to buy for the year ahead.