Summary
- U.K. housebuilder Berkeley recently updated the market, saying it is in line with its profit forecast.
- It is paying out a healthy dividend and planning another one.
- The announcement is a sign of strength from a well-run company.
- However, I think its quality is factored into its share price already, so continue to avoid.
- U.K.-based upmarket homebuilder Berkeley (OTCPK:BKGFY) recently updated the market with an upbeat trading statement. Although I retain a negative rating on the stock, the trading statement helps the bull case on the name.
Berkeley Continues to Perform Fairly Well
Despite the challenges of post-lockdown working and house selling, the company described trading in recent months as resilient. It reaffirmed its guidance of £500 million of pre-tax profit for the full year. Although that is good and flat year on year, note that the c. £500m level of this year and last is already a sharp contraction compared to the prior year (2019) when profits were at £775m, or the year before when they were at £977m. Berkeley’s successful and very profitable London development drove those numbers but is no longer pertinent, which is one reason why the company’s current profit forecasts are a better guide to likely future profitability than its historical record.
I think the fact that the company continues to expect to perform in line with prior year at the profit level, in a challenging working and trading environment, is a sign of the company being well-run and having a good strategy well executed. It is one of the better names amongst U.K. housebuilders in that regard, in my opinion.
The Company is Signalling Strength Through Its Dividend
The company announced a dividend of 107p per share last month and confirmed in its trading update that it plans to make this declared dividend. It will also continue its share buyback.
The company also signaled its plan to declare its next dividend. The company said that it had made £140.1 million return to shareholders for the six months to 30 September and that it planned to make the same amount of return for the next six months. Although it did not specify how much of that would be in the form of dividend payments, in the current six-month period, it has been 96%.
A similar ratio is possible for the next half year, but the company’s record of dividend payments does not move in anything like a smooth line, so it is hard to tell.
Based on the dividend to be paid soon, even if no other dividend was forthcoming, yield at today’s share price would be 2.4%, which isn’t to be sniffed at. If the next dividend payout is at the same level, annual yield at today’s share price would be 4.8%. In 2017 and 2018, the two dividend payments each year were fairly close in size to one another, but in the past couple of years, there has been one much larger dividend payment.
