ii view: Barratt’s 9% yield may tempt income seekers

Launching a £200 million share buyback programme and sat on an estimated future dividend yield of around 9%, we assess prospects. 

Full-year results to 30 June

• Revenues up 9.5% to £5.26 billion 
• Adjusted pre-tax profit up 14.7% to £1.05 billion
• Final dividend of 25.7p per share
• Total dividend for the year up 25.5% to 36.9p per share
• Launching a £200 million share buyback programme
• Net cash down 13% to £1.1 billion
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Chief executive David Thomas said:

“This has been a year of fantastic progress, with completions recovering to pre-pandemic levels and excellent productivity across our sites. Our financial strength and operational excellence position us well to navigate the macro-economic uncertainties ahead.”

ii round-up:

Housebuilder Barratt Developments (LSE:BDEV) builds nationally, employing more than 6,000 people. 

Approximately two-thirds of its builds are three or four-bed houses. Its brands are Barratt Homes, David Wilson and Barratt London. Its commercial business Wilson Bowden focuses on retail, leisure, office, industrial and mixed-use schemes.

For a round-up of these latest results announced on 7 September, please click here.

ii view:

The FTSE 100 constituent has been building houses for more than 60 years. Today, it constructs both private and affordable housing, delivering 17,908 during this latest financial year, up from 17,243 in the prior year and above the 17,856 homes built in the pre-pandemic 2019 year. It hopes to complete between 18,400 and 18,800 homes over the year just started, with a medium-term target of 21,500. 

For investors, headwinds include rising interest rates and high economic outlook uncertainty. Elevated build costs, a highly competitive market in which to buy land, and the pending withdrawal of the ‘Help to Buy’ scheme also all warrant consideration. As does an additional cladding provision of £396 million.  

• Housebuilder shares yo-yo as investors react to stamp duty cut
• The funds set to benefit from Liz Truss’ spending splurge
• Reaction to Bank of England's big interest rate hike

On the upside, cuts to stamp duty have been made, potentially buoying customer demand, with a planned increase in corporation tax also cancelled. Further surplus cash will now be returned to shareholders via a new £200 million share buyback programme, unemployment remains relatively low, while mortgage availability is robust. 

On balance, reasons for caution persist. But with the shares trading on a price/earnings (P/E) ratio below the 10-year average and sitting on an estimated future dividend yield of around 9%, income investors are likely to stay patient.  

Positives: 

• Offers regional UK geographical diversity
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Elevated build costs

The average rating of stock market analysts:

Buy