Property developer

As a quick introduction, Crest is a property development business. It focuses its operations primarily in and around the London area. It builds and sells properties such as family homes, apartment complexes, and more.

So what’s happening with Crest shares currently? Well, as I write, they’re trading for 224p. At this time last year, the stock was trading for 378p, which is a 40% decline over a 12-month period. Many stocks have come under pressure due to macroeconomic headwinds as well as the tragic events in Ukraine.

An income stock with risks to consider

Soaring inflation, the rising cost of materials, and the global supply chain crisis could cause Crest issues. When costs rise, profit margins are put under pressure. If prices are hiked, Crest risks losing customers.

Supply chain issues could also impact operations, including the completion of properties to sell. Finally, the Bank of England (BoE) has increased the base interest rate to combat soaring inflation. The issue here is that this makes mortgages more expensive for consumers. This could affect demand for Crest too.

Another risk to note is that dividends are never guaranteed. I must bear this in mind when considering any stock for dividend income. Dividends can be cancelled at any time. This is more likely to happen during times of economic volatility, like now, when companies may need to conserve cash.

The positives and what I’m doing now

So to the positives, then. I like Crest’s business model of focusing its operations in the South of England. This is because property prices are traditionally higher in this region. That means that it is in a position to sell at higher prices and make higher margins. This could support performance growth and returns.

Next, there is a severe shortage of homes in the UK. With demand outstripping supply, Crest should be able to leverage this increased demand to boost its performance and levels of return.

As with any income stock, I want to understand the level of return I could receive. I look at the dividend yield to learn this. At present, Crest shares yield 6.6%. This is over three times the FTSE 250 average of 1.9%.

Although I am aware that past performance is no guarantee of the future, I am buoyed by Crest’s latest trading update. A half-year report for the period ended 30 April was released in June. It confirmed that revenue increased by over 12% compared to the same period last year. In addition, profit, home completions, units sold, and net cash increased too. An interim dividend of 5.5p was declared.

In conclusion, I like Crest Nicholson shares. I am not worried by current volatility in the market and the fact the share price has fallen. In fact, this makes the shares more appealing. I would add the shares to my holdings as an income stock to boost my holdings for the long term.

Dividends are also very welcome right now with inflation racing towards 10% in the UK. These payments will help offset the impact of inflation on my portfolio, although I appreciate that dividends aren’t guaranteed.

But I also see now as a good time to buy in general. Stocks are depressed around the world, but a I think a recovery is coming. It might not start as early as August, but it’s coming.

So here are two dividend stocks I’d buy before August.

Crest Nicholson

Crest Nicholson (LSE:CRST) is one of the most embattled housing stocks. It’s had a rough few years with demand for homes in the South East falling on the back of Brexit-related uncertainty. And then the pandemic hit.

To make things worse, a large proportion of the company’s 2022 profits will be wiped out by its fire-safety pledge. Crest expects its commitment to reclad houses will cost it more than £100m.

But things are looking up and the share price is down. Underlying profitability is increasing. In June, the company said it expected full-year adjusted pre-tax profit to be £135m-£140m, compared with £45.9m a year before.

This is clearly an impressive jump and represents a return to the levels frequently achieved before its problems started in 2018/2019.

In its June update, Crest said completions rose to 1,096 year-on-year, from 1,017. Forward sales secured as of 10 June stood at £814.9m from £692m the year before. 

However, as interest rates rise and amid a cost of living crisis, Crest and its fellow housebuilders may suffer from falling demand in the coming months.

But I’d buy Crest for the long run. There’s a dearth of homes in the UK and this isn’t going to change any time soon. Demand will continue to outstrip supply as the population continues to rise, boosted by those from abroad who want to live here.

Crest current has an attractive 5% dividend yield.

Hargreaves Lansdown

Hargreaves Lansdown (LSE:HL) shares have collapsed this year after it became clear its pandemic-era growth was unsustainable.

The firm offers an attractive 4.5% dividend yield, but is also valued like a tech stock to some extent. It has a price-to-earnings ratio of 13 reflecting its potential for growth. I appreciate that’s not particularly large, but it’s considerably higher than other FTSE 100 financial institutions right now.

Hargreaves benefited during the pandemic when people were locked up in their homes, and many turned to investing. Users of Hargreaves’s investment platform soared during this period. But, with offices, restaurants and the wider economy fully open, the firm has seen a slowdown.

According to research from Lloyds, one in 10 Britons began investing during the pandemic. Many of these investors were Millennials or Gen Zers, who are looking to invest for the long run, according to Barclays.

And personally, I prefer Hargreaves Lansdown’s investment platform and customer service. So, in the long run, I see Hargreaves as a winner in the sector, and I’d buy now at the current depressed price.

The last two years have been particularly volatile too. The stock now trades near its pandemic-era low.

So, let’s take a look at what’s been impacting the share price, and why I think it looks like a good buy right now.

What’s behind the share price volatility?

Crest Nicholson ran into trouble before the pandemic. In 2019, it blamed Brexit uncertainties for putting off buyers and “breeding unease“. But the developer, which primarily operates in the south of England, was already being impacted by a sluggish London property market.

With the share price plummeting, it embarked on a restructuring programme that saw the planned opening of its South East division shelved. The central London office was also closed.

Despite a booming property market in 2021 and so far in 2022, like other housebuilders, it has seen its share price tank again. Pressures include concerns about inflation, higher interest rates and the cost of recladding thousands of properties as part of the government’s fire safety pledge.

Crest Nicholson said it would set aside a further £120m to fund recladding operations after signing the pledge.

Performance and valuation

In June, it raised its full-year outlook, despite swinging to an interim loss due to the fire safety pledge, and said it expected to counter cost inflation with higher selling prices.

Completions rose to 1,096, from 1,017 year-on-year, while forward sales secured as of June 10 stood at £814.9m from £692m the year before.

The company said it expected full-year adjusted pre-tax profit to be £135m-£140m, compared with £45.9m a year before. Crest put the cost of recladding at £105m during the first half of the year.

The firm has a price-to-earnings ratio of 7.5, which is above some in the industry, but still looks very cheap compared to the market as a whole. Crest is arguably on a more upward curve than its peers following a restructuring period.

Prospects

The housing sector is facing some uncertainty right now. Higher rates should be weighing on demand for housing, but it’s not quite happening yet. Although there are some signs that the housing market is cooling.

The Royal Institution of Chartered Surveyors recently said that 27% of housing market professionals were noting a fall in interest from potential house buyers.

But it’s clearly not as bad as some investors anticipated. And for me, that makes now a good time to buy Crest Nicholson.

The share price is near its 52-week low and I’m bullish on long-term demand for property. As such, I think the current 252p share price represents a good entry point for me.

I actually already own Crest Nicholson shares, but at that price I’d buy more.

And that makes me think now is a great time to search for cheap FTSE 250 buys. Here are three that I think look good value now.

Undervalued bank

Paragon Banking Group (LSE: PAG) released half-year results on 14 June, and the share price perked up nearly 7% on the day. Over the past 12 months it’s fallen 7.3%, which is certainly not great. But it does beat the index’s drop of 16%.

The economic outlook might be tough for the banking sector. But Paragon still reported record first-half profits. Underlying earnings per share grew by 29%, and the dividend rose 30%.

Paragon’s capital position looks strong. And CEO Nigel Terrington said “…we have extended this year’s share buy-back by an additional £25 million“.

What’s the downside? The economic squeeze is probably only just starting. And a tough lending environment could put pressure on Paragon in the second half.

But annualising these figures hints at a price-to-earnings ratio of under eight. And forecasts indicate a full-year dividend yield of 5.5%. I’d buy.

FTSE 250 housebuilder

Housebuilder Crest Nicholson (LSE: CRST) also put out first-half figures on 14 June. And I think the dip we’re currently seeing provides some nice buying opportunities for the sector.

The Crest Nicholson share price is down 34% over the past 12 months. It has been rebounding a little since May, though, including an 11% jump on results day.

Crest saw a 12.3% rise in revenue, after completing 7.8% more homes in the period. The company spoke of the “underlying strength of the housing market,” which counters the pessimism I’m seeing from other quarters.

This is another stock that could be pressured if there’s a borrowing squeeze. And though Crest is upbeat about the second half, we could still see falling demand. But it’s another cheap long-term buy for me.

Investment management

Hedge fund manager Man Group (LSE: EMG) has bucked the FTSE 250 trend, gaining 26% over the past 12 months.

Even after that, we’re looking at a trailing P/E of only 8.7. Apart from a Covid dip in 2020, dividends have been steadily progressive over the past few years too. Current forecasts suggest a 4.4% yield this year, and that should be very well covered by earnings.

On the downside, hedge fund investing can be volatile. And Man uses gearing through borrowing too, so there’s clearly some risk there.

But so far, the company’s computer-based investing strategy has been producing the goods, with strong cash generation as a result. Man is buying back its own shares too, so I’m not the only one to think they’re good value now.

Would I spread £5,000 across these three? Definitely.

The FTSE 250 stock is certainly trading at a discount, having fallen from highs of over £6 a share in 2017. It’s now trading at less than £3 a share, despite gaining 14% over the past month.

I actually already own some Crest Nicholson shares. But have I just missed a good opportunity to buy more?

Crest Nicholson performance

The housebuilder actually saw its profits decline before the pandemic. In 2019, Crest Nicholson blamed Brexit uncertainties for putting off buyers and “breeding unease“, which compounded an already sluggish London market.

The company is known for building in the south of England, and has historically achieved higher average selling prices than other housebuilders. Pressure on the London market, even before the pandemic, saw the share price plummet.

As part of a restructuring, Crest shelved the planned opening of its South East division and closed its central London office.

Pre-tax profits were £87m in 2021, still less than the £102m earned in 2019 and less than half the £207m achieved in 2017. However, it was a considerable improvement from the £13.5m loss made in 2020.

Prospects

2021 results showed that things were looking up for the business. The board spoke of a “transformed” balance sheet, with net cash at year-end totalling £252m, up from £142m at the end of 2020. Return on capital employed increased to 17.2% from 7.6%.

In January, the group said that 63% of revenue for the 2022 financial year was already covered. House prices have also been rising, which should be good for housebuilders.

Headwinds

Crest Nicholson predicted 2022 would be less volatile than previous years. However, it hasn’t been that stable.

Inflation, a cost of living crisis and higher interest rates have also weighed on developer share prices. And there are signs that demand for new homes might finally be cooling as house prices only grew 1% in May, according to Halifax data.

Crest has also had to pledge more money to remove flammable cladding from homes it developed. The firm was seemingly less exposed to these costs than other housebuilders. However, after signing the government’s fire safety pledge in the Spring, Crest Nicholson said it would set aside a further £120m.

The total cost of the cladding pledge could reach around £167m. Berenberg said it could totally wipe out the firm’s 2022 profits and would roughly have a 10% impact on equity.

So, should I buy more Crest stock?

Despite the headwinds and the cladding costs, I think Crest looks like a good stock to buy and hold. So, yes, I would add more Crest Nicholson shares to my portfolio at this price.

Valuations

The share prices of housebuilders have been on a downward track this year amid rising inflation, higher interest rates, and a cost of living crisis. The cost of fixing the cladding crisis has also weighed on share prices. However, this comes on the back of a very strong year for housebuilders. This means we’re seeing some fairly low price-to-earnings (P/E) ratios based on the past year’s earnings.

While these figures are based on the previous year’s earnings and the current share price, it should be fairly indicative as demand for new homes has remained strong so far this year. Many companies have also noted a strong forward order book.

Dividends

As discussed, I think housebuilder stocks are a good place to look for strong dividend yields. Here’s how these six companies stack up at today’s prices.

While Persimmon might appear like the clear winner here, it’s important to note that sizeable dividends are not always sustainable. The dividend coverage ratio is a good place to look to see whether a stock can afford to pay its dividend.

The ratio indicates how many times the company can pay its stated dividend from its net income. The data above suggests that Persimmon’s dividend is least sustainable, while Redrow’s dividend is most sustainable. It’s worth noting that the reporting periods for the dividend coverage ratios are do not match perfectly but provide a good idea of the comparative sustainability.

Cladding costs

The government has made housebuilders sign up to a fire safety pledge that sees them put money aside to reclad houses and flats built using dangerous materials. The costs are pretty substantial. The below figures are the most recent provided by housebuilders, combining money already put aside and estimates for future work.

Which one is best for my portfolio?

It’s certainly worth noting that there could be downward pressure on the housing market this year and next. And this could further impact share price. However, I feel housing stocks are already quite depressed and I’m bullish on long-term demand for property in the UK.

My top pick is Vistry Group. It beat its pre-pandemic performance but some distance last year and said it was in a strong position for further growth in 2022. Its sizeable dividend is also well covered. I’ve bought Vistry Group shares and would buy more.

Currently, I’m favouring passive income shares over growth stocks because they’re offering me returns now rather than in the future. This is because high inflation and interest rate rises incentivise returns this year rather than in five years’ time.

However, while I’m confident Bank of Georgia and Crest Nicholson can grow substantially in the future, both these stocks are offering dividends this year.

Bank of Georgia

Over the year to February, the Tbilisi-based bank had risen by nearly 40%. However, Russia’s invasion of Ukraine saw the share price tumble. Russia and Ukraine are two of Georgia’s largest trading partners and the war is anticipated to weigh on economic growth, but not as much as some might expect.

For me, the Bank of Georgia looks very cheap with a price-to-earnings (P/E) ratio of just 3.3. However, I think this stock has long been undervalued. Prior to the war, its P/E ratio was still below five. This is largely because Georgia is considered a more risky place to invest than the UK or the US. But I’d consider Georgia a high-growth market which has put market-based principles at the centre of its long-term economic strategy.

The bank’s performance was good in 2021, buoyed by strong economic data. In March, Georgia’s Office for National Statistics said that the economy had grown by 14.6% year-on-year. The Bank of Georgia in turn posted a pre-tax profit of £192m, more than any year in the last five. 

Georgian economic growth is predicted to only be 2.5% in 2022, due to the war in Ukraine, which may impact the bank’s growth. Further escalation of the war may hurt the share price even more, but I’m confident about the long-term growth prospects here. I have recently bought shares in the bank and am looking to buy more.

Crest Nicholson

I’ve owned and followed Crest Nicholson shares for a long time. It’s not been an easy ride, but I’m now confident that the business is facing in the right direction and that there’s plenty of upside potential here.

The London-headquartered builder has struggled in recent years but took positive steps in 2021, posting a pre-tax profit of £86.9m. That was a considerable swing from the loss registered in 2020. In January, Crest said it was confident of continued progress in 2022, noting that 63% of revenue for the 2022 financial year was already covered. It also talked of a “transformed” balance sheet with net cash at year-end totalling £252.8m, up from £142.2m at the end of 2020.

Yes, there are challenges ahead. The business has said it may incur up to £120m in extra costs as part of its commitment to end the cladding crisis. Equally, rising interest rates may dampen demand for homes while inflation is making the cost of building higher.

But I’m in this for the long term. I think Crest Nicholson has a good product and I think demand for new homes in the long run will only increase.

Royal Mail

Royal Mail (LSE:RMG) is currently trading at a 36% discount versus three months ago. Moreover, at 331p, the current price is massively down on last summer’s 600p.

But beyond the obvious upside potential, I believe Royal Mail will grow strongly in the future. The pandemic forced the London-headquartered firm to put parcels at the heart of its operations. Royal Mail has seen a massive increase in the number of parcels being posted through its service. This should help the group transform its revenue.

Moreover, just a few years ago, it was sorting the majority of parcels by hand. This was eating into the firm’s margins. But this year, that figure is expected to be half, representing a considerable change. I think there’s plenty of upside here and will be buying Royal Mail shortly.

Rising inflation, leading to higher wages, is one risk for this stock. Wages are one of the firm’s main costs, and wage inflation could be exacerbated by a strong union.

Crest Nicholson

Housebuilder Crest-Nicholson (LSE:CRST) returned to pre-tax profit in 2021 after a tough pandemic. While performance figures are still down on a few years ago, the company has made strategic changes to reposition the business.

In January, Crest said 2022 should be less volatile that previous years, noting that 63% of revenue for the financial year was already covered. They also suggested that the new leadership team had established a strong footing for future growth.

The stock is current trading around 276p a share. That’s massively down from just five years ago when the company’s share price exceeded £6. Like many housebuilders, the share price has continued to fall despite the positive performance data.

However, the impact of interest rate rises on demand for new homes, cladding repayments and inflation represent ongoing risks for the business. These have all weighed on its share price.

I own shares in Crest and will continue to hold.

Tate & Lyle

Tate & Lyle (LSE:TATE) isn’t exactly a beaten-up share, but there are promising signs for this food ingredients business. The group now focuses on products like sweeteners, thickeners and bulk commodities, having let go of its sugar brand.

It has sought to transform itself, selling off less profitable parts of the organisation. Instead, the company is focusing on higher-growth areas. The parts of the business sold off have been holding back the company’s margins. Without them, Tate & Lyle’s operating margins rise from 11.1% to 14.8%.

The stock is currently trading around 736p a share, down from highs of over 800p. It is also offering an attractive 4.17% dividend yield. Moreover, £500m of the £900m made by shedding less profitable units has been earmarked for shareholders.

One issue is that the firm’s dividend yield is not as well covered by earnings as I’d like. The dividend coverage ratio in 2021 was 1.77.

It’s not easy to find stocks that offer dividend payments comparable to or in excess of the current rate of inflation, and even when I do, it will pay me to be cautious. Some companies offer attractive dividends to entice investors but don’t have a healthy dividend coverage ratio — a measure of a firm’s ability to pay dividend from its profits.

My inflation-busting stocks

For me, housebuilders are a good place to look for stocks offering attractive dividend yields, healthy coverage and upside potential. The sector, which has performed well over the past year, is awash with firms providing dividend yields in excess of 4%.

The two companies I’ve chosen are Vistry Group (LSE: VTY) and Crest Nicholson (LSE: CRST). Both companies are down nearly 2% today and down substantially over the year despite performing well in 2021.

Vistry Group

Vistry Group is down more than 20% over the past six months and 11% over the year. However, the ailing share price belies some positive performance data.

Following a tough year for all housebuilders in 2020, Vistry Group reported “excellent progress” in 2021, noting strong demand across all areas of the business. Completions rose 23.7% to 11,080 as the FTSE 250 firm reported a 32% year-on-year jump in revenues to £2.69bn.

In 2021, Vistry posted pre-tax profits of £319.5m. The figure is exceeds pre-pandemic profits by some distance and the company claimed it was confident of improved performance in 2022, highlighting a “very strong” forward sales position.

While there’s certainly room for the share price to grow, I’m interested in Vistry because it offers a 6.3% dividend yield. Over the past three years, the firm has maintained a dividend coverage ratio above two, suggesting it’s in a strong position to maintain its payments.

Crest Nicholson

London-headquartered Crest-Nicholson struggled in recent years but took positive steps in 2021, posting a pre-tax profit of £86.9m. The figure represents a considerable swing from 2020, when Crest registered a loss of 13.5m.

Today, it’s trading at around 270p a share. That’s considerably down from five years ago when the company’s share price exceeded £6. The share price has continued to fall in recent months despite the positive performance data. That has been amid general concerns of the impact of interest rate rises on demand for new homes and inflation.

In a January statement, Crest suggested it was confident of continued progress in 2022, noting that 63% of revenue for the 2022 financial year was already covered. 

For me, both these firms look like a good buy in the current climate. I already hold Crest Nicholson and will be receiving a healthy dividend from its in early April. I’ll also be looking to add Vistry to my portfolio.

However, while the current turmoil, triggered by Putin’s invasion of Ukraine, has shaken the conviction of many investors, it has also created a number of opportunities.

For me, now is a good time to invest. In recent weeks I’ve doubled down on several investments and bought stocks that have been on my watchlist for months.

5 April marks the deadline for ISA contributions in this financial year, and while there’s nothing to stop me popping my money in the ISA wrapper and leaving it as cash, I think there are bargains to be had right now.

Here’s three stocks I’d invest my money in before next month’s annual ISA deadline.

Crest Nicholson

For me, the housing sector is a great place to look for attractive dividend yields and plenty of upside potential. Crest Nicholson (LSE:CRST) is certainly trading at a discount, having fallen from highs of over £6 a share in 2017 to less than £3 today.

Crest, like other housebuilders, has underperformed in 2022 amid concerns of further interest rate rises, heightened supply chain costs and an ongoing disagreement with the government about recladding thousands of buildings deemed unsafe.

However, the Surrey-headquartered firm has emerged from the pandemic with a strong balance sheet, returning to profit in 2021 after recording a £13.5m loss in 2020.

In January, Crest said that 63% of revenue for the 2022 financial year was already covered and that the firm had a strong footing for future growth.   

Crest currently offers an attractive 4.6% dividend yield. In 2021, the dividend coverage ratio was a healthy 2.5.

Vistry Group

Yes, it’s another homebuilder. The Vistry Group (LSE:VTY) share price has also suffered over the last six months, down more than 20% since September.

However, this belies some positive performance data. Vistry posted pre-tax profits of £319.5m in 2021, far above pre-pandemic levels, and the company says that it’s in a good position to further increase profits and returns in 2022, noting a “very strong” forward sales position.

While there may be headwinds in the shape of interest rate rises and inflationary pressure, for me, Vistry Group looks like a good buy right now.

The firm is currently offering an enticing 5.9% dividend yield that is projected grow further in the coming years. The dividend coverage ratio is also healthy, standing at 2.09 in 2021.

HSBC

The HSBC (LSE:HSBA) share price has collapsed in the wake of Putin’s invasion of Ukraine, down more than 15% in the last month. It’s not been an easy year for the UK’s largest bank; HSBC has also had to navigate other pressures including the fallout from the Evergrande fiasco in China.

However, I’m bullish on this stock, which is still trading far below its pre-pandemic level. The bank turned a pre-tax profit of $18.9bn in 2021, trumping its performance in 2019 and 2017.

I also like HSBC’s long-term strategy. The firm announced it would accelerate its “pivot to Asia” plan last year, increasing its exposure to markets with high-growth potential. 

Currently the bank is offering an attractive 3.88% dividend yield, making this blue-chip stock a good buy for me.