Our latest research 21/01/2015

Today we are going to look in the Optimizer at the housing sector which has been making hay ever since it’s near destruction during the financial crisis. The household goods and home construction sector comprises Bovis Homes, Berkeley Group Holdings, Barratt Developments, Persimmon, Bellway, Redrow and Taylor Wimpey. We believe that this sector will benefit from being seen as largely domestic and not heavily linked to the European debate. A difficult stock market between now and the general election should underpin property in general as investors draw strength from the old adage ‘safe as houses’. Additionally, the Government has been working on the housing feel good factor for some time with its help to buy scheme and most recently the restructuring of the stamp duty rates. Additionally, we believe that the current moves in the pension legislation will lead many people into the equity markets but also many will buy property with their pension pots. Initially, we will consider the whole sector and have a look at the fundamentals:

Looking at the fundamentals we have:

Clearly, in this sector, the performance of each individual company relies upon the overall economic situation and the performance of the sector as a whole so we do see a P/E grouping that is quite tight ranging from 10.2 to 8.0x. So, we will try to find what we think will be the best house builder by looking at certain critieria and ranking them by the criteria above and the final Criterion for our overall ranking will be to see how the dividend has fared since DividendMax records began in 2006.

Next, We will examine what the brokers are saying about them:

We are going to go with the brokers views as a start point and eliminate those where a broker has a sell recommendation against them and get rid of Berkeley Group Holdings, Barratt Developments and Persimmon. We are also going to eliminate Taylor Wimpey who completely over-stretched themselves in the run up to the financial crisis, seeing their shares drop to 5p.

Let’s have a look at the dividends paid by each of the survivors over the past 8/9 years:

Bovis Homes

*We are estimating a final dividend of 23.0p

Bellway

Redrow

Whilst the entire sector suffered very badly during the financial crisis, of our three survivors, Bellway and Bovis homes stand head and shoulders above the rest. We prefer Bellway which has never cut its dividend (in Stock market parlance cut means reduce to zero, not just a reduction) Bellway has recently been selected by JP Morgan as one of its top 10 conviction buys in the market and we agree with JP. It has an excellent track record. In its most recent update to the market on the 12^th December they provided a solid picture for the coming year which we believe will be bolstered significantly by the recent moves by the Government on stamp duty.

Bellway yield calculation:

18.0 + 40.0 + 20.0 = 78.0p between now and 26/5/20156 (approximate ex-dividend date of the third dividend)

Ergo 78.0p / 1748 = 4.46% 4.46% annualised = (4.46x365) / 490* = 3.31%

*Number of days until theoretical ex-dividend of the third dividend.

Note that if the dividend forecasts are correct, the actual yield (which DividendMax calls the ‘Optimized yield) is affected by two factors; the share price and the proximity to ex-dividend dates. DividendMax performs these calculations daily against hundreds of stocks in the U.K. and overseas producing new lists every day as prices change, dividends change and ex-dividend dates approach.