Please ensure Javascript is enabled for purposes of website accessibility

These Homebuilders Are Likely To Raise Their Dividends This Year

By Jay Yao – Mar 22, 2016 at 6:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Given the improving economy and low mortgage rates, these two stocks will likely raise their dividends payouts.

Source: Pixabay 
 
Homebuilders have done well since the Great Recession. The SPDR S&P Homebuilders (ETF) has rallied more than 150% from its 2009 lows while many individual home builder stocks have performed even better than the index, having doubled or tripled over the same time period.
 
A big reason for this strong advance is, as one might imagine, improving fundamentals. Home values have steadily increased from 2009 to 2015. Housing starts have more than doubled from their 2009 levels to over 1 million units on a seasonally adjusted annual basis in 2015. With mortgage rates low and unemployment below 5%, those numbers could get even better if the economy is willing. Among the homebuilders that have rallied over the past six years are two exceptionally well-run companies, D.R. Horton (DHI -1.09%) and PulteGroup (PHM -1.76%) that also happen to offer attractive dividend yields. Let's take a more in-depth look at each of them.
 
D.R. Horton 

Image source: D.R. Horton investor relations 

 
D.R. Horton has been the #1 builder for 14 consecutive years by closing volume. The company reported an excellent first quarter, with earnings of $0.42 per share, beating estimates by $0.01 per share, and revenues of $2.36 billion, up 5.4% year-over-year.
Net sales orders rose 9% to 8,064 homes and their dollar value rose even more, by 12% to $2.4 billion. In terms of guidance, management remains focused on increasing revenues and pre-tax profits at a double-digit annual pace while generating positive cash flows. 
 
One reason to like D.R. Horton is the company's growing backlog, which rose 15% year-over-year in the first quarter to 
10,665 homes. D.R. Horton's substantial backlog (with a total value of $3.2 billion) provide the company demand visibility into the quarters ahead and can smooth out any moderate demand changes.
 
Another reason to like the company is the potential for D.R. Horton's dividend to rise substantially. Management raised the dividend to $0.08 per share from $0.0625 per share in fourth quarter of 2015 but has considerably more room to raise the dividend further given D.R. Horton's low payout ratio of 12.9%.
 
PulteGroup
Like D.R. Horton, PulteGroup also reported strong quarterly earnings, beating top and bottom line expectations for its most recent quarter. For its fourth quarter, the company earned $0.64 per share on revenue of $2.06 billion, exceeding estimates by $0.15 per share and $210 million. Closings rose 7% year-over-year to 5,662 homes while home revenues climbed 12% to $2 billion. In addition, PulteGroup's backlog ended the year at 6,731, the highest year-end number since 2007.
 
Given the company's low payout ratio of 21.3% and given the fact that the company has raised its dividend in the fourth quarter for every year since 2013, PulteGroup will likely continue the tradition and raise the dividend once again in 2016.  

Investor takeaway
D.R. Horton and PulteGroup have a history of dividend increases in recent years and both companies are likely to raise their dividends this year given their low payout ratios. Both companies' earnings should grow in 2016, and both are good long term buy-and-holds no matter what the economy might do in the near-term.
 
 

TMFJay22 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PulteGroup Stock Quote
PulteGroup
PHM
$43.31 (-1.76%) $0.78
D.R. Horton Stock Quote
D.R. Horton
DHI
$83.30 (-1.09%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.