When most investors go hunting for income, they look to defensive companies likeNational Grid(LSE: NG) (NYSE: NGG.US). However, a new breed of income stock has just sprung up and many investors are missing out on a great opportunity.
Indeed, thanks to the surge in the demand for new, affordable housing within the UK, homebuilders are seeing their profits explode. For the most part, these profits are being returned to investors and Persimmon, as well as Berkeley are treating their shareholders like kings.
For example, Persimmon announced a strategic plan during 2012 to return 1.9bn to investors, around 6.20 per share, over the next nine years. Due to the improving housing market, however, the company has decided to speed up this cash return.The first two payments of surplus capital, totalling 1.45 per share, or 442m, were made on 28 June 2013 and on 4 July 2014.
The third payment is scheduled for July 2015 and is expected to be around 0.95p per share, for a total of 290m.
All in all, these special payments, and the companys regular dividend will add up to a dividend yield of 5.8% for this year. Further, the City is predicting a dividend yield of 7.3% for next year. The payout both this year and next will be covered one-and-a-half times by earnings per share.
Persimmon currently trades at a forward P/E of 11.8 and a 2015 P/E of 9.7. So not only is Persimmon a dividend champion but the shares are cheap.
Persimmons hefty dividend yield and low valuation makes National Grid look really unattractive. Indeed, National Grids dividend yield is expected to average 5% over the next two years. The payout is covered one-and-a-half times by earnings.
Whats more, at present levels National Grid looks expensive. The companys shares are currently trading at a forward P/E ratio of 16.1, falling to 15.3 by 2016.
And its not just Persimmon that looks more attractive than National Grid. Berkeley Group has also begun returning impressive amounts of cash to investors and the company now offers one of the best dividend yields around.
Specifically, the City expects that Berkeleys shares will support a dividend yield of 7.7% next year, followed by a yield of 6% the year after. Analysts believe that these two payouts will be covered between 1.2 and 1.5 times by earnings per share.
In addition, like Persimmon, Berkeley is trading at a bargain basement valuation. Berkeley currently trades at a forward P/E of 11.1 and City analysts believe that this will drop to 10.2 by 2016.
What to do
Still, I strongly suggest that you do some further research before making any trading decision regarding Berkeley or Persimmon. Actually, before you make a decision, why not check out this free, brand new and exclusive reportthat singles out even more FTSE 100 winners to really jump start your investment income.
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