This article will take a look at three of our favorite ways for investors to profit from a rising real estate market. These are not stocks of home builders, but rather represent companies that have business models that will benefit from the continued growth in home construction and sales of new and existing homes. This list includes two companies that have overcome the cyclicality of the housing sector to increase dividends to shareholders for at least 25 years, calling them Dividend Aristocrats. You will learn the key details about these dividend paying stocks.
The housing market in the United States has been booming in recent years, with the market accelerating in recent times. This is in part due to pent-up demand in the wake of the pandemic and stimulus checks, which many consumers have spent on improving their homes.
The housing market continues to improve, marked by rising house prices, and there are few signs of slowing down. Now that the worst of the pandemic seems to be behind us, people are looking to return to a more normal lifestyle, which for many includes buying a new home. Existing home sales are showing immense growth as homes listed for sale tend to spend an average of one month on the market and receive multiple offers, unlike previous wait times of 60 to 120 days.
According to the US Census Bureau and the US Department of Housing and Urban Development, building permit for private housing totaled 1,681,000 for the month of May. Although this is a slight sequential decline, it is an increase of almost 35% year over year. With this demand for building permits, the prices of lumber, copper and other building materials have become very high. Building material prices fell slightly, but still remain historically high as the housing boom continues.
Overall, the following three dividend stocks will benefit greatly from rising house prices, and shareholders will in turn benefit from dividend growth and rising futures prices:
- caterpillar (NYSE:CAT)
- Leggett & Platt (NYSE:LEG)
- MDC Holdings (NYSE:MDC)
Housing dividend stocks: Caterpillar Inc. (CAT)
The first of the dividend-paying stocks we are discussing, Caterpillar is the world leader in construction and mining equipment. The $ 117 billion market-capitalization company also supplies diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company achieved a turnover of just under $ 42 billion Last year.
As the world’s largest producer of earthmoving equipment, an ongoing real estate boom greatly benefits the business of the company. The opposite was seen in 2020, with Caterpillar seeing a 47% drop in earnings per share as dealers and customers became more cautious during the pandemic.
We can expect construction growth, not only in the United States, but around the world, to allow Caterpillar to increase earnings per share by over 40% in 2021. That would leave the bottom line again. much lower than before the pandemic. highs, but it would still be a very good performance.
This return to growth will also help ensure the continuation of Caterpillar’s dividend growth streak. After an 8% dividend increase for the upcoming payment date August 20, the company has increased its dividend for 28 consecutive years. This is an impressive achievement for a company so committed to a healthy economy. Previously, Caterpillar had paid the same amount of dividend for eight consecutive quarters. The dividend of the company has a compound at an annual rate of 8.88% over the past decade.
The company’s shares are returning just over 2% at the moment. Although below the 10-year median stock return of 2.5%, Caterpillar’s return is above the average return of about 1.4% of the S&P 500 index.
With a new annualized dividend of $ 4.44 and our earnings per share expectation of $ 9.20 for 2021, Caterpillar has a projected payout ratio of 48%. This is slightly above the average payout rate of 45% since 2011. The dividend appears to be well hedged and unlikely to be reduced, even though earnings per share decline significantly again.
Leggett & Platt (LEG)
Leggett & Platt has a broad portfolio of engineered products including furniture, bedding units, adjustable beds, store accessories, steel wire and vehicle seat support systems. The company is valued at nearly $ 7 billion and generated revenue of $ 4.3 billion in 2020.
Adjusted earnings per share fell 17% last year as the company felt the impact of the Covid-19 pandemic, but we believe 2021 will be a much better year for the company. We expect Leggett & Platt to earn $ 2.65 this year, which would be a 24% increase from the previous year and a new record for the company. A surprisingly rapid turnaround seems possible for the company, a sure sign of its strength.
Leggett & Platt maintains a leadership position in a very fragmented industry, which gives it an advantage over smaller players. What is useful is that there are few bigger competitors in many of the categories in which he competes. Leggett & Platt strengthened its leadership position by small business acquisition who have competed who have shown to increase its market share. These strengths should allow the company to achieve a new record earnings per share this year.
This business model paved the way for 48 consecutive years of dividend growth, placing the company just two years away from achieving King of dividends status. Shareholders will see a 5% increase in their dividend payments from July 15. The latest increase is greater than the compound annual dividend growth rate of 4.1% over the past decade.
Leggett & Platt today offers a high return of 4.3%, which compares favorably to the 5-year average return of 3.3%. The current yield is also more than 200 basis points above the average market yield.
The new annualized dividend of $ 1.68 would consume 63% of our expected earnings per share for the year, slightly below the average payout ratio of 75%. Leggett & Platt’s payout ratio appears to be in good shape and the company has a formidable history of dividend growth. With a strong business model and a long history of growth, we believe shareholders are more than likely to continue to receive higher dividends in the years to come.
Dividend stocks in housing: MDC Holdings (MDC)
The latest of the dividend-paying stocks we are discussing today, MDC Holdings is made up of two segments, homebuilding and financials. The company’s residential construction arm, Richmond American Homes, is focused on acquiring finished or developable land for the construction and sale of detached single-family homes. These homes are aimed at first-time buyers and new buyers. The financial services segment provides mortgages primarily to its home buyers. Annual revenues totaled $ 3.9 billion last year and MDC Holdings is valued at $ 3.7 billion today.
MDC Holdings has resisted the trend of other names in this article and has shown tremendous growth over the past year. Revenue increased 18% and earnings per share improved 50% in 2020.
The company was able to do well in an otherwise very difficult year for most of the others as it benefited from limited supply. MDC Holdings’ focus on more affordable prices and its make-to-order business model puts the company at an advantage over many in the same industry. The limited supply and higher demand at the present time has allowed the company to bring more inventory to market while increasing prices. We expect MDC Holdings to see its diluted earnings per share increase 25% to $ 7 this year.
MDC Holdings suspended its dividend after the Great Recession as activity fluctuated sharply after the latest housing crisis. That said, the company has compounded its dividend at a rate of 12.4% over the past three years. The most recent increase increased the dividend by 21% and marks five years of dividend growth. The latest increase was the second increase in the past four quarters. The dividend payment made on May 26 was about 30% higher than the payment for the same quarter a year ago.
MDC Holdings reports 3.1%, a generous level of income given the current low-yield environment, but slightly below the stock’s 5-year average yield of 3.5%.
Shareholders are expected to see at least $ 1.60 in dividends in 2021. Using our earnings per share expectation, MDC Holdings has a projected payout ratio of just 23%, lower than the five-year average payout ratio of 36 %. The combination of excellent business execution, a low payout ratio and management’s commitment to high levels of dividend growth leads us to believe that MDC Holdings will continue to provide dividend increases to shareholders at the company. to come up.
At the time of publication, Bob Ciura had not (directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Bob Ciura worked at Secure dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a BA in Finance from DePaul University and an MBA with a concentration in Investments from the University of Notre Dame.