Should you buy FTSE 100 dividend stock HSBC, or 8% yielder Barratt Developments, today?
I'm so confident in the earnings outlook for Barratt Developments (LSE: BDEV) that, despite recent signs of cooling activity in the housing market, I have clung on to my holdings in the homebuilder.
In fact, I'm rather tempted to pile in and grab some more of the FTSE 100 builder given its dirt-cheap valuation, a forward P/E ratio of just 8.2 times. It's obvious to every man and his dog that the stunning profits increases of recent years are about to draw to a close as tough economic conditions and a collapse in the buy-to-let market put an end to stratospheric growth in property values.
Yet latest Halifax data released today showed that house prices rose 1.4% month-on-month in July, the average home in the UK now trading at a fresh record peak of £230,280.
There is something very reassuring in these numbers -- it shows that, despite the considerable disturbance that Brexit is causing to homebuyer confidence, home values continue to rise.
And this reflects the massive shortfall in available homes in the UK, an issue that is providing extremely favourable to the new-build providers like Barratt. The London-based builder declared last month that pre-tax profits for the 12 months to June 2018 are expected to surge to £835m from £765.1m a year earlier thanks to "a strong end to the financial year and early progress on margin initiatives."
It's no surprise that City analysts are expecting earnings growth to continue from the anticipated 8% rise in fiscal 2018 with a 4% rise this year. But given the company's proven resilience I wouldn't be surprised to see current forecasts receive a large dose of rocket fuel as the period progresses.
I've long argued that its stable earnings picture and exceptional cash flows makes it a great destination for dividend chasers too.
Barratt has vowed to keep shelling out special dividends through to November 2019, and broker forecasts right now are suggesting total payouts of 43.7p per share for the year just passed, and 45.1p for the current period. This results in a forward yield of 8.4%.
But the builder isn't the only dividend darling I'd splash the cash on right now. Indeed, latest trading details from HSBC Holdings (LSE: HSBA) convince me that it's also a great Footsie-listed income share to load up on.
I've time and again lauded the excellent profits potential in its fast-growing emerging markets, and the bank's latest release this week showed profits in Asia ballooned 23% during January-June, to $9.4bn. It said that "the fundamentals of Asia remain strong, despite rising concerns around the future of international trade and protectionism," and I agree, given the positive demographic trends in these regions.
It's no shock to see the number crunchers forecasting a 51% earnings surge in 2018, and another 4% rise next year. Consequently HSBC can be picked up on a low, low prospective P/E ratio of 12.9 times. And they also support expectations that dividends will remain at generous levels.
A recent reward of 51 US cents per share is expected to be carried through until the close of next year, meaning that HSBC carries a giant 5.5% yield for the period. And I am convinced that the bank, like Barratt Developments, has what it takes to continue doling out market-beating dividends for many years to come.
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Royston Wild owns shares in Barratt Developments. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.