Barring any catastrophic, end-of-year collapse, 2019 has proved to be a decent one for FTSE 100 investors. Those who bought a tracker fund at the start of January would now be celebrating the 7% rise in the index to current levels around 7,200 points, a particularly impressive result given that fears over the global economy have also risen from a year ago.
In recent days I’ve looked at various reasons why Britain’s blue-chip index could either sink or surge in end-of-year trading, and the very same factors could prove to decisive for the Footsie’s direction in 2020.
But what will the new year look like for this 7%-yielding FTSE 100 income stock, which has already put the broader index in the shade this year?
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44% share price gains!
Barratt Developments (LSE: BDEV) has blasted past most of its Footsie compatriots in 2019. In fact, its 44% share price rise since January makes it the index’s best-performing housebuilder so far this year.
It’s not that Barratt and its rivals in this construction sector have done anything particularly spectacular. It’s more a realisation from the investment community that Britain’s huge homes shortage means that trading conditions for these firms remain quite robust, as illustrated by the steady stream of positive trading updates that continue coming in from across the sector.
This particular builder itself declared, in its most recent statement from October, that it had “a healthy order book” and that it continues to see “good customer demand for high quality new homes across the country”.
Fears over how the economic impact of Brexit would hamper newbuild homes demand in the near-term and beyond had put the dampener on investor appetite for Barratt and its peers in 2018. But the realisation that sales to first-time buyers remains quite strong – supported by great mortgage products, the government’s Help-To-Buy scheme, and huge financial help from family to get onto the ladder – has prompted many to believe that the housebuilders have been grossly undervalued. Hence why these shares have exploded in popularity in 2019.
More room for manoeuvre
Yet despite these gains it could be argued that they remain quite misunderstood by the market, giving them space for additional stock price gains in 2020. Take Barratt, for example. A forward price-to-earnings ratio of 9.2 times leaves it trading well below the broader FTSE 100 average of 14.5 times. And a corresponding dividend yield of 7.1% makes mincemeat of the 4.8% blue chip average.
Such low figures leave the business with plenty of scope to keep rising in 2020, in my opinion. And data released yesterday suggests that wider market conditions are improving as homebuyer confidence steadily improves. Halifax advised that annual property price growth came in at a seven-month high of 2.1% in November, providing fresh reasons to be optimistic for the new year.
