Have £3,000 to invest? A FTSE 100 dividend stock I’ve bought and will never sell
Barratt Developments(LSE: BDEV) is a share I believe you can buy now and stash away with absolute peace of mind. In fact, I’ve put my money where my mouth is and the housebuilder is a key holding in my own investment portfolio.
You may look at me and think I’m nuts considering the company’s adverse price action of recent days, fresh falls which reflected a further ratcheting up of fears of a disorderly Brexit. Barratt saw its share value tank 7% on Thursday amid concerns over the health of Theresa May’s premiership, and it hit two-week troughs the following day.
This is a fresh buying opportunity, in my opinion. Such is the fluidity (not to mention chaos) of Britain’s extraction from the European Union that further short-term drops cannot be ruled out. This is no guarantee, of course, but at current prices I believe the business is too good to miss out on right now.
Stunning value
Barratt now sports a forward P/E ratio of just 7.3 times, a reading that sits comfortably below the widely accepted bargain benchmark of 10 times. I am convinced that the long-term profits outlook for the firm remains robust and recent UK building statistics proved why, the Ministry of Housing advising on Friday that 222,190 homes were created during 2017/18.
While this was the second-highest amount on record following the 223,530 new homes built exactly a decade earlier, last year’s number represented just a 2% year-on-year rise and marked a severe decline from the double-digit-percentage rises of the past four years (including 2016/17’s 15% increase).
It seems as if the government still has a long way to go to achieve its goal of building 300,000 brand new homes per year by the middle of the next decade. Of the 222,190 homes created last year, only 195,290 of these were new, the bulk of the remainder comprising conversions from non-residential to residential properties and existing houses being carved up into flats.
9% dividend yields? Yes please!
Noises coming out of the Ministry of Housing do not suggest that the paralysis that has afflicted housing policy for the past few decades is about to be shaken off any time soon either, whether that be slashing red tape or helping housing associations to boost build rates. I’m not expecting Britain’s colossal housing shortage to be soothed any time soon, and thus demand for the new-builds offered by Barratt Developments and its peers is likely to continue outpacing supply long into the future.
In the meantime, City analysts are expecting the FTSE 100 firm to churn out earnings growth of 4% in the 12 months to June 2019, a reassuring projection given that conditions in the market are the most difficult that they’ve been for donkey’s years.
And this means that dividends are expected to keep rising as well. Current forecasts suggest a 45.2p per share payout is in the offing, up from 43.8p last year and a figure that yields a stunning 9%. There are plenty of hot dividend stocks on the Footsie right now and in my opinion, Barratt is one of the best.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
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