Home improvement business

As a quick reminder, Grafton is the largest home improvement retailer in Ireland with over 35 locations. It also has an online store but the business has a diversified offering with distribution and manufacturing arms that provide products in the UK too.

So what’s happening with Grafton shares currently? Well, as I write, they’re trading for 813p. At this time last year, the stock was trading for 1,237p, which is a 34% drop over a 12-month period.

To buy or not to buy

So what are the pros and cons of me buying the shares?

FOR: Investor sentiment for long-term returns around home improvement and building stocks is positive. This is closely linked to the fact that demand for homes is outstripping supply. Government initiatives, as well as private companies, are looking to boost the number of homes being built. Firms like Grafton could experience heightened demand for their products across all its divisions. This could boost performance and returns.

AGAINST: Soaring inflation has led to a spike in the rising cost of raw materials. This has had a material impact on the building trade. With costs rising, profit margins are being squeezed. This could have a detrimental impact on Grafton and its performance. Less profit could mean less to return to shareholders as well as less cash for growth initiatives. The supply chain crisis is also an issue too, which could affect operations and sales. After all, Grafton can’t sell products if it is unable to get hold of them from its suppliers.

FOR: I understand that past performance is not a guarantee of the future. However, looking back, Grafton has a decent track record of consistent revenue and profit generation. Furthermore, at current levels, the shares would boost my passive income stream through dividend payments. Its current yield stands at 3.7%. This is higher than the FTSE 250 average of under 2%. I do understand that dividends are not guaranteed. Finally, the shares have a price-to-earnings ratio of eight, which makes them look good value for money.

AGAINST: Competition in the home improvement and building sector is intense. Many firms are trying to capitalise on favourable market conditions and offer the best prices as well as products. Grafton could see its performance and returns affected if other home improvement businesses are able to win new business more often and dominate the market.

A FTSE 250 stock I would buy

Weighing up the pros and cons, I would buy Grafton shares for my holdings. Based on current market factors, and the race to build lots of new homes, I believe most home improvement businesses will benefit. Grafton is a large name with a diversified business model which helps me make my decision. Furthermore, dividends and its cheap share price help boost my bull case.

Grafton

Grafton (LSE: GFTU) is a FTSE 250 constituent, and could be a beneficiary from the Help to Build scheme. This is because, unlike Help to Buy, the new initiative won’t directly benefit property developers such as Barratt and Taylor Wimpey. The loan is only available for houses built by self-builders and custom builders. As the scheme is set to last until 2026, the group could end up benefiting from a long-lasting tailwind.

Grafton is a builders merchant that sells all sorts of goods required to build a house. These include building materials, timber, decor, DIY items, and pipes. Its manufacturing segment only accounts for 5% of its revenue, so I expect the business’ distribution segment to fair better from the new builds. Not to mention, its history of producing healthy profit margins makes it an attractive stock for me to purchase. However, it’s worth noting that the current cost-of-living crisis could hamper sales figures.

Breedon

Breedon (LSE: BREE) is the UK’s largest independent construction materials firm. It is listed on the FTSE AIM index. The company produced a combine 31.6m tonnes of cement and aggregates in 2021. But more importantly, the board expects further growth this year.

Constructing a new house typically uses more than a 100 tonnes of cement and aggregates. Therefore, I expect the Help to Build scheme to act as a tailwind for the FTSE firm. That being said, Breedon’s revenue doesn’t just stem from building houses. It paves roads and builds other infrastructure as well. Given how well the S&P Global/CIPS UK Construction Purchasing Managers Index (A measure of how well the construction sector is doing) has been performing, Breedon shares could improve in the long term. Its share price also currently trades at a decent price-to-earnings (P/E ratio) of 13, so I see this as a buying opportunity for me.

Dunelm

Inflation continues to run rampant. Thus, new home owners will be looking for bargains in furniture. Thankfully, FTSE 250 staple Dunelm (LSE: DNLM) provides exactly that. Its everyday necessities have an average price of £6, while its furniture has a low average price of £120.

Management has stated its goal of bringing better value proposition to its customers too. This is evident as Dunelm introduced more entry price products and promotional buys, which should entice more customers and purchases.

The retailer still has to compete with IKEA though, as its competitor offers cheaper products in certain categories. That being said, consumers still seem to prefer shopping at Dunelm. This is due to its excellent customer service, such as cheaper deliveries. On that account, as long as Dunelm can maintain its competitive prices and good customer service, I see it being one of the few FTSE shares riding the tailwinds of the new Help to Build scheme.

So what is Grafton Group Units? The company supplies building materials and DIY products. And it seems they have been in big demand over the past year. That helped it to report a whopping 355% increase in adjusted earnings per share for the six months to 30 June 2021.

Revenue grew by 46%, and improving margins helped to accelerate the bottom line even further. Adjusted operating profit more than trebled to £157.8m.

The company’s liquidity situation is made a bit tricky by IRFS 16 rules, which include lease liabilities under debts. On that basis, Grafton ended the half with net debt of £209.9m. But excluding IFRS 16 leases, we’re looking at a net cash position of £302.5m.

These are record figures, and it’s a very pleasing outcome for shareholders. But what about investors looking at the company afresh, wondering whether there’s still a buying opportunity here? In other words, what about me? Should I be looking longingly at the Grafton share price, or should I keep a bargepole’s distance?

Fundamental valuation

Well, the share price is significantly elevated, after this year’s run. But what has that done to the valuation? Doubling up the first half earnings per share figure, the current 1,400p share price gives us a price-to-earnings multiple of approximately 14. That’s close to bang on the long-term average for the FTSE 100. The dividend yield, estimated on the same basis, is a bit low at 1.2%. But it’s covered around sixfold by earnings, suggesting there’s plenty of scope for accelerated dividends in the future.

This guesswork is based on a static second half, though. And analysts expect it to do better than that and for the growth continue. So a Grafton share price valuation based on annualising the first-half figures might fall significantly short.

Part of Grafton’s growth plan involves acquisitions, and there seems to be plenty of cash to pursue that. Saying that, I have seen too many companies come a cropper over the years by over-stretching themselves. Then when a slowdown comes, they find themselves in a pinch.

Grafton share price future?

For Grafton, I wonder how much of the growth is sustainable and how much is down to the pandemic effect. DIY demand did climb, and materials shortages have led to higher prices and fatter margins. Should the demand/supply balance shift, we could see falling prices putting a squeeze on margins again.

Saying that, for now at least, Grafton still looks like a tempting growth prospect on fundamental measures. I won’t buy based on this short inspection, or on one set of interim results. But I do intend to take a much closer look at the company.

Sopheon — which provides enterprise innovation management (EIM) solutions that allow managers to effectively monitor and use data — said that revenues jumped 19% year-on-year in the first half to $16.5m. In addition, it said that recurring revenues improved by a fifth over the period as attempts to migrate to a software-as-a-service (SaaS) model business paid off.

As a result adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) at Sopheon rose 8% year-on-year. Trading at the business is improving rapidly but I’m afraid I won’t be buying this share any time soon. Its forward price-to-earnings (P/E) ratio of 842 times is gargantuan and could prompt a severe share price correction if sales don’t keep rising at an electrifying rate. The EIM market is growing rapidly but the company faces intense competition from industry heavyweights like IBM and SAP.

A better buy?

The Grafton Group (LSE: GFTU) share price has also risen following the release of its own market update. At £13.44 per share the UK retail share was trading 2.7% higher on Tuesday. It struck record highs around 10p higher earlier in the day.

In its half-year financial statement, Grafton — which supplies building materials and DIY products through a wide variety of retail brands — said that revenues rocketed 46.1% in the first half of 2021, to £1.03bn. This in turn drove pre-tax profit to £142.9m, up a whopping 384.8% from a year earlier.

The bottom line also benefitted from a significant year-on-year improvement in operating margins. Stripping out property profit these jumped to 13.9% from 6.7% previously. And pleasingly cash generation at Grafton also clicked through the gears between January and June. This resulted in net cash of £302.5m on the balance sheet at the end of the half, up around £245m from June 2020 and giving the company plenty of financial strength to pursue its M&A-led growth strategy.

Why I’d buy this UK share

I think Grafton Group is a top UK growth share to buy today. City analysts think earnings here will rocket 67% during 2021, a bold estimate that doesn’t surprise me for a number of reasons. The construction market is booming and should continue to improve as the economic recovery clicks through the gears, keeping demand for Grafton’s products bubbling nicely. It’s a trend which the company’s healthy appetite for acquisitions should help it to exploit to the fullest too.

Speaking of which, I’m also encouraged by Grafton’s attempts to expand its geographical footprint to boost profits growth (its most recent purchase in July saw it enter the Finnish market by acquiring IKH). Today the FTSE 250 firm trades on a forward price-to-earnings growth (PEG) ratio of just 0.3. This sits well inside the widely regarded bargain benchmark of 1 and below. While supply chain problems could blow current forecasts off course, I think this UK share could still be too cheap to miss.

Rupert Hargreaves: Morgan Sindall

As the UK economy recovers from the pandemic, the construction sector seems to be taking off. As such, I’d buy Morgan Sindall (LSE: MGNS).

As one of the country’s largest construction groups, the firm looks set to benefit from rising activity in the sector.  Indeed, according to a recent trading update, the firm expects to report profit-before tax in the first half of its financial year 46% above 2019 levels. Its backlog has also continued to grow. It is up 5% compared to the year-ago period.

These figures are encouraging, but the construction industry can be volatile. So, Morgan’s fortunes for the year could still change.

Nonetheless, with revenues expanding, I’d buy the stock today.

Rupert Hargreaves does not own shares in Morgan Sindall.

Edward Sheldon: Unilever

My top British stock for August is consumer goods giant Unilever (LSE: ULVR).

Unilever’s share price took a hit in July after the company published its half-year report. Investors didn’t like the fact that earnings were impacted by cost inflation.

I think this share price pullback has provided a nice entry point. Overall, the results showed that Unilever is heading in the right direction. Sales growth came in at 5.4%, while e-commerce sales were up 50%.

With the stock now trading on a forward-looking P/E ratio of less than 20 and offering a prospective yield of around 3.5%, I think it’s a good time to be buying.

Edward Sheldon owns shares in Unilever.

Kevin Godbold: IMI

IMI (LSE: IMI) makes “highly engineered” products such as actuators and valves.

The business scores well against quality indicators, such as return against equity and operating margin. There’s a robust record of operating cash flow and earnings barely faltered through the pandemic. Looking ahead, City analysts have pencilled in a double-digit percentage increase in earnings for 2022.

With the stock near 1725p, the forward-looking earnings multiple is around 18. That’s not cheap and the valuation adds risk for shareholders. But IMI has earned its rich rating. And I’d want it in my portfolio for August and beyond.

Kevin Godbold does not own shares in IMI.

Royston Wild: The Vitec Group 

The Vitec Group’s (LSE: VTC) share price has risen strongly over the past 12 months. And I think that the UK engineering share could gain more ground when first half results are posted on Thursday, 12 August.  

Demand for Vitec’s cameras and broadcast equipment is soaring right now. The firm saw product orders rocket 50% to record levels in the five months to May, it said in its latest statement. And this prompted the business to upgrade its forecasts for the full year.

It’s true that electronic equipment shortages could hamper Vitec’s sales recovery. However, I believe this risk is baked into the share price right now. Today the small cap trades on a forward price-to-earnings growth (PEG) ratio below 0.1. 

Royston Wild does not own shares in The Vitec Group.

Paul Summers: ASOS

Following the huge (overdone) fall of its share price in July, my top stock for August is fast-fashion firm ASOS (LSE: ASC). 

Sure, the company faces some near-term issues relating to its supply chain and slowing sales. There’s also the threat of an online sales tax to consider. However, the stock hasn’t been this cheap since last September. Margins are slowly improving and newly acquired brands will help boost growth in time. 

I’m confident this AIM-listed star will shine again once travel restrictions are lifted and we need fresh wardrobes for holidays. 

Paul Summers has no position in ASOS

Zaven Boyrazian: BP

With the world shifting to renewable energy solutions, BP (LSE:BP) is transforming itself into one of the largest green energy providers over the next decade. Its existing portfolio heavily relies on oil. However, due to increased environmental pressure, that may soon no longer be the case.

It’s already investing in wind, solar, bio and hydrogen energy solutions. And BP estimates it will be generating 50GW by 2030. That’s roughly enough to power 15 million homes.

The transition undoubtedly has risks that could cause short-term disruptions to profits. But over the long term, I believe BP stock and its 5.4% dividend yield will continue to rise in August and beyond.

Zaven Boyrazian does not own shares in BP.

Nadia Yaqub: Aviva

A lot has been happening at Aviva (LSE: AV). The new CEO, Amanda Blanc joined the firm last year. It has also been disposing of assets to focus on its core businesses. And the insurance company announced that it’s going to be making a substantial capital return to stockholders.

I like that the Board is shareholder friendly. Further details on this capital distribution will be released later on in the year. In my opinion, things are changing for the better. The shares pay a dividend yield of 7% and are trading on a cheap price-to-earnings (P/E) ratio of 7x.  

Nadia Yaqub does not own shares in Aviva

Roland Head: B&M European Value Retail

Discount retailer B&M European Value Retail (LSE: BME) has performed well over the last 18 months. Its stores qualified as essential retail and remained open, enjoying bumper trading.

Since its IPO in 2014, B&M has consistently been more profitable than the big supermarkets. I expect this to continue, even as the boost from Covid-19 fades away.

The main risk I can see is that B&M’s success will attract increased competition. So far, I don’t see much sign of this.

B&M’s share price has pulled back recently, as the market prices in slower growth. I think that’s left this business looking very affordable.

Roland Head has no position in B&M European Value Retail.

Tom Rodgers: Grafton Group

I see Grafton Group (LSE: GFTU) as one of the best FTSE 250 stocks to buy in August. The building materials and DIY retailer has profited from the home refurb boom and early shareholders have been rewarded with a 70%+ share price growth in 12 months.

I see much more upside on the cards, however, because the well-run business raised its profit forecast on 8 July after a strong first half of the year. Its buyout of Finland’s workwear distributor IKH also adds another income stream for 2021. Now seems to be a good time to buy to cash in on these profits. 

Tom Rodgers does not own shares in Grafton Group

Christopher Ruane:  Lloyds

High street bank Lloyds (LSE: LLOY) has recently slowed down after a strong share price performance this year. It’s up a third in 2021 and 60% over the past 12 months.

I see a buying opportunity. A possible price driver is the likelihood of a growing dividend. The bank has committed itself to a progressive dividend policy. It is now sitting on excess capital which could help fund it.

Any weakening in the housing market is a risk. As the UK’s leading mortgage provider, Lloyds is heavily exposed to housing.

Christopher Ruane owns shares in Lloyds.

G A Chester: Centamin 

The share price of gold miner Centamin (LSE: CEY) has more than halved since this time last year. It’s been the victim of two common risks that can dent such a stock. Namely, a weakening of the price of gold and an operational setback. 

However, I can see two reasons for optimism right now. First, continuing massive money printing by governments should be supportive of the gold price. Second, Centamin appears to have stabilised operations. 

It reiterated its production and costs guidance for 2021 in a report on 22 July. I reckon further positive noises in its half-year results on 5 August could see returning investor interest in the stock. 

G A Chester has no position in Centamin.

Manika Premsingh: BP

The FTSE 100 oil biggie BP (LSE: BP) will release its second quarter results at the start of August. They could come in strong. We need to look no farther than crude oil prices to know this, which are at pre-pandemic levels. Companies like BP are direct beneficiaries of this trend, as was already visible in the quarter before. The numbers could look better purely because of base effect as well. The same time last year was one of high restrictions, so there was little travel demand and oil prices were relatively low.

I reckon that its share price can rise as results come in, particularly if there are positive developments on the dividend front.

Manika Premsingh owns shares of BP

Strong trading

Frenkel Topping Group (LSE: FEN) is enjoying strong gains on Tuesday following the release of fresh trading news. Up 4% on the day, the financial advice firm is now 19% more expensive than it was at this point last June.

Frenkel has continued to trade robustly in the year to date and chief executive Richard Fraser said the UK financial share has enjoyed “strong organic growth” in the first five months of 2021. Acquisitions have also been performing well, he added, while the business has kept winning assets under management (AUM) mandates in the period.

AUM was up 6% on 30 April from four months earlier, at £1.07bn, due to “net inflows and encouraging levels of new business wins.”

Building its international footprint

The Grafton Group Units (LSE: GFTU) share price has also risen strongly today, taking gains over the past 12 months to an impressive 82%. It’s up by mid-single-digit percentages in Tuesday business.

The builders’ merchant has soared, thanks to the sunny outlook for the British and Irish construction sectors. Fresh acquisition news on Tuesday has helped the UK retail share gain even more ground.

Grafton will pay €199.3m to pick up Scandinavian peer IKH in a deal that’s expected to complete in July. It described IKH as “one of the largest workwear and personal protective equipment (“PPE”), tools, spare parts and accessories technical wholesalers and distributors in Finland.”

Grafton chief executive Gavin Slark also that the move “[will] strengthen the group’s operations in the mainland European market in line with our international development strategy.”

Another busy UK share making M&A moves

National Express Group’s (LSE: NEX) share price is also rising on Tuesday following an acquisition announcement of its own. Up 2% on the day, the coach and bus operator has now risen 20% in value over the last 12 months.

The UK transport share has been heading southwards in recent weeks on government plans to delay lifting Covid-19 restrictions. But news today that it’s to acquire Transportes Rober in Spain for €13m has helped lift investor mood. National Express already operates in the country through its ALSA division.

National Express said the takeover “represents a further step in consolidating the regional and urban bus markets, a strategy which ALSA has successfully executed in Galicia, the Basque Region and Leon among others.”  Transportes Rober has operated the urban bus contract in Granada for more than 20 years.

National Express also announced today that its trading performance across the group continues to improve and is slightly ahead of management expectations. It added: “We have continued to win new contracts… notably in corporate shuttle both in North America and the UK.”

That umbrella covers PageGroup (LSE: PAGE), the international recruitment specialist, though that company does have exposure to the problematic Asia Pacific economies too.

The firm has just reported a 0.4% decline in gross profits for the 2019 fourth quarter, but results are varied across geographic sectors. In its home territory, the company suffered a 4.8% fall, but the UK only accounted for 16% of gross profit, which makes PageGroup relatively immune to a downturn here.

Full year

Things were brighter for the full year, with a 5% rise in gross profit and 19 countries reaching new records. Previous guidance for the year is still on the mark, with operating profit expected to be in the range of £140m to £150m.

Chief executive Steve Ingham said: “The majority of the Group’s regions were impacted by macro-economic and political uncertainty in Q4…Trading conditions were more challenging in many of our larger markets, including Greater China, the UK and France.”

In the light of that, I see the year’s results as impressive, and I expect PageGroup to perform well when conditions improve. A P/E of around 14 looks like a fair valuation to me, with ordinary dividends coming in around 3% (but with specials set to boost dividends for this year and next).

Building

When it comes to the building trade, like the recruitment business, I think it pays to seek those with a more international outlook.

In October, I examined Grafton Group (LSE: GFTU) after the company issued a third-quarter profit warning, saying that “I still rate Grafton as a buy, and the next year or two could be a good spell for topping up.”

Since then, the share price has been on the rise, and a year-end trading update from the the international builders merchants and DIY group provided a 12% boost when the market opened — softened to a 6% gain at the time of writing.

The company told us: “Trading in November and December was better than anticipated.” It is now expecting an adjusted operating profit of around £202m (approximately £190m on a pre-IFRS 16 basis for continuing operations), even though “end markets remain subdued.”

Global strength

The UK market was the weakest for revenue with a 1.1% fall, but rises across the rest of the firm’s regions resulted in an overall total gain of 2.7%. The Netherlands market was the star with a 36.2% gain, but Ireland came in 5.4% ahead too. These are all at actual exchange rates — revenues at constant currency were slightly better.

The PageGroup share price has firmed up since I last rated the shares a buy, and we’re now looking at P/E multiples close to the market average at around 14. With earnings growth on the cards for 2020 and 2021, and dividend yields of around 2.5% covered three times by earnings, I remain positive.

Whatever the short-term outlook, I think the future will be healthy for the property market, and I also like a few brick & mortar construction stocks I think will do well.

Here I’m looking at two property-related stocks, which have caught my attention for opposite reasons — one was in Thursday morning’s list of top risers, the other in the top fallers list.

Building materials supplier

I took a look at Grafton Group (LSE: GFTU) a couple of weeks ago, as one in the brick & mortar category. Although its recent earnings growth was expected to slow, I liked the look of it as a long-term defensive stock. Thursday’s third-quarter trading update included a profit warning, and talk of “softer third quarter trends which have continued into October” didn’t help the share price, which dropped 10% during the morning.

While the UK’s construction business is struggling with the uncertainties brought by a potentially traumatic Brexit, the firm now expects to miss its previous expectations by around 4% to 8%. That’s despite constant-currency revenue having grown by 3.6% in the nine months to 30 September, and by 3.1% on a like-for-like basis. But the downturn can be seen in Q3, which saw like-for-like revenues gain just 0.9%.

Assuming a 6% undershoot on forecast earnings, we’re now looking at a forward P/E of 13 after the share price dip. The predicted dividend would still be covered more then three times by reduced earnings, so I think that looks safe, and it would yield 2.4%. That’s not the biggest dividend in the market, but as it’s so well covered and progressive, I find it attractive.

I still rate Grafton as a buy, and the next year or two could be a good spell for topping up.

Small-cap REIT

The big riser is the Capital & Regional (LSE: CAL) real estate investment trust, whose shares jumped 20% on Thursday. The reason is simple. It’s a big investment in the firm by Growthpoint Properties, which has made an agreed partial offer for 30.3% of the existing share capital and will invest a further £77.9m in a new share issue. The result of the deal will see Growthpoint holding approximately 51.2% of the new enlarged share capital.

Prior to the price leap on the news, Capital & Regional shares were trading on a forecast P/E of only around five, which is super low. When that happens to a share that’s genuinely undervalued, a buyout offer is often the way it’s resolved. But it can also result in existing shareholders being forced to sell their shares at a price that, even if it’s at a premium, they might not consider attractive in the long term.

This partial offer can help solve that dilemma. In the words of the company, if offers shareholders “the opportunity to realise an attractive premium to the current share price… while affording them the opportunity to participate in the future value of a recapitalised Capital & Regional.”

I think shareholders should be pleased by the news.

On top of that, QinetiQ’s dividends have been yielding around 2.5% on average, so I’ve missed a solid investment there. But hindsight is a poor master, so are QinetiQ shares still worth buying?

Forecast price-to-earnings multiples come in around 14 to 15, close to the Footsie’s long-term average. But that average includes a lot of companies that carry significant debt, and QuinetiQ is not one of them. In fact, at the end of its last financial year at 31 March, QinetiQ reported net cash of £188.5m on its books. For me, that indicates a company that deserves a premium valuation, which we still do not see here.

New contracts

QinetiQ’s success in securing new contracts is continuing, with a £1.3bn “ground-breaking agreement” signed with the MoD in April, coming after several contract wins coming from the US.

On the US front, the company has just announced an acquisition that’s set to double the size of its US operations. The target is Manufacturing Techniques Inc, to be bought on a cash-free, debt-free basis for $105m, plus an earn-out of up to $20m depending on “delivering stretching financial targets over three years.”

To answer my earlier question, yes, I really do think QinetiQ is still an attractive long-term investment. I might even, finally, act on that thought and buy some myself.

Progressive dividends

Speaking of overlooked FTSE 250 companies, I’ve been taking a look at Grafton Group (LSE: GFTU), one of the UK’s largest construction supply firms.

We’ve just heard the news from Nationwide that, as of September, UK house price growth has “almost ground to a halt.” That’s not necessarily bad on its own, but if it’s an omen for any kind of decline in the near future, there would surely be fears of a construction slowdown.

But we’re still firmly entrenched in a chronic housing shortage, and public infrastructure projects are very much a long-term driver of the sector.

One question is which companies are likely to prosper at the sharp end of the business, and my answer is that it doesn’t matter if you ignore them and instead buy one of the industry’s ‘picks and shovels’ businesses like Grafton Group. While it’s perhaps literally applicable in this case, the term applies to those firms that provide the intermediate supplies and services that keep a sector going.

5-year record

On that score, Grafton has been performing very well, seeing its earnings per share almost treble over the past five years, while its share price has gained only around 30%.

That growth spurt is expected to slow, with a couple of relatively flat years on the cards. But the dividend has been progressing well above inflation, and is forecast to continue. Yields are only modest, with 2020’s predictions indicating 2.6%, but we’re looking at cover by earnings of more than 3.3 times.

I rate Grafton as a defensive long-term buy.

By the time you consider fading tax relief and increasing costs, as well as the possibility that dizzying home price growth may not be a thing of the past, I reckon that investing in stocks has become a much more attractive way to make your money work for you. It’s why I have chosen equity markets over the chance to become a landlord myself.

I would consider a better, albeit indirect, way to play the property market is via buying into Grafton Group Units (LSE: GFTU). The business distributes building materials to trade customers, and because Britain needs to double-down on homebuilding in the coming decades, I’m tipping profits here to keep rising.

Even if you’re fearful over Brexit and how this could dent homes demand and thus build rates in the years ahead, I reckon that Grafton is a great share to buy. Why? Well the retailer is also a  major player in Ireland as well as the Low Countries, territories which are also suffering from chronic homes shortages and whose economic prospects aren’t overshadowed by political upheaval like that of the UK.

Profit are booming

Latest financials underlined just why I believe the FTSE 250 firm’s such a great investment right now. Revenues across the group rose 9% in 2018 to a shade under £3bn, Grafton citing the “benefit from exposure to the fast-growing Irish and Dutch markets and from strong underlying demand fundamentals in the UK market.”

Adjusted pre-tax profit rose 20% to £188.4m last year, but this wasn’t only down to its soaring top line. The Dublin firm’s efforts to supercharge margins are also paying off handsomely and as a consequence, operating profit margin at group level  boomed by 60 basis points to 6.6% in 2018, putting it further towards Grafton’s medium-term target of 7%.

Those improving margins have also improved the company’s reputation as a colossal cash machine. Cash flow generated from operations of £209.2m last year remained stable from 2017 levels, and its ability to chuck out the readies is enabling it to keep delivering some brilliant acquisitions as well. 2018 saw the business snap up London-based decorating specialist Leyland SDM for £82.4m, the majority of whose outlets can be found in the more affluent parts of the capital like Kensington and Notting Hill.

Payouts to continue rising!

It’s no surprise that Grafton’s bright outlook and exceptional cash generation prompted it to raise the full-year dividend for 2018 by an impressive 16%, to 18p per share, keeping its progressive dividend policy going nicely (annual payouts have risen 67% over the past five years).

And City analysts believe that, supported by a predicted 7% earnings rise in 2019, payouts will rise again to 18.3p per share. Yields bigger than Grafton’s forward figure of 2.4% can be found, sure, but few appear as rock-solid (the estimated dividend is covered 3.5 times by forward earnings) or in as good a shape to keep raising annual rewards at the same stratospheric rate. I consider Grafton to be an exceptional income stock to buy today, and particularly for those looking to play the property markets.