Looking good...8 May 2018 18:18
From HL
Half year results at Barratt Developments saw continued progress in revenues, margins and profits.
The group announced an interim dividend of 8.6p per share, up 17.8% on last year. This represents one third of the ordinary dividend expected for the full year.
In addition to the �175m (around 17.3p per share) it already expects to pay in November 2018, the group has announced its intention to pay a further special dividend of �175m in November 2019.
The shares rose 2.5% on the news.
Our View
The UK's biggest housebuilder is splashing out once again.
Barratt felt comfortable enough to extend its capital returns plan in February 2017, offering a more generous ordinary dividend. More recently, the extension of its special dividend policy and the surge in land purchases suggests it thinks the current housing boom has further to run. It's easy to see why.
The sector has plenty of tailwinds. Interest rates may creep up but look set to stay low by historic standards, supporting mortgage affordability. Meanwhile the UK's ongoing housing shortage continues to stoke the fires of demand for new builds. Supportive government schemes, such as the Lifetime ISA, Help to Buy and stamp duty tax breaks, are geared towards new builds and first time buyers, providing an added boost to the builders.
It'd be unfair to say all of Barratt's recent success has been down to being in the right place, at the right time. Operational performance has been good. Gross margins have grown from 12.8% in 2012 to 20% last year, and measures to improve efficiency in the construction process look to be delivering.
However, there's no getting away from the fact macro conditions set the tone, and these goldilocks conditions could change quickly.
One positive is that the group now has a net cash position, before accounting for land creditors. This means the balance sheet carries much less debt than at the time of the last crisis. Barratt seems to have learnt its lessons, albeit the hard way.
The prospective yield is 7.2%. That level of income is clearly attractive - although investors should bear in mind that close to 40% of the payout is due to special dividends. No dividend is guaranteed, but specials are particularly flaky.
The shares trade on 1.25 times book value, our preferred valuation method for capital intensive industries like housebuilding. The longer-term average is more like 0.82.
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