The portfolio’s sale of housebuilder Redrow appears to have been well timed. This stock has fallen by 20% this year and by another 5% since I ditched it from the SIF fund and my own holdings on 25 June.

Stagnating house prices and rising wage and materials costs suggest to me that margins and perhaps profits may have peaked for most housebuilders. And as John Kingham highlighted recently in his excellent UK Value Investor blog, the house price to earnings ratio is now at an all time high of 7.8 in England and Wales. Theoretically, houses are less affordable than they’ve ever been.

Of course, this headline figure is skewed by sky-high prices in London and by the (crazy) Help to Buy Scheme. But the underlying reality seems to be that more and more people can’t afford to buy houses. Can housebuilding stocks still deliver attractive returns?

Profit from rental demand?

One possibility is that the growing demand for rental property will continue to support the market for new-build homes. The increased involvement of institutional investors in this sector could mean that big housebuilders can secure contracts to build large numbers of houses. Such work could provide predictable cash flows and margins.

One housebuilder that appears to be focusing heavily on this sector is Bovis Homes. Much of the company’s recent Capital Markets Day presentation focused on affordable housing and the group’s partnerships with “registered providers”. These appear to be housing associations and residential developers active in the social housing market.

According to the company, the attractions of this business include “repeat and early business” and “drive down cost; increase efficiencies”. Land earmarked for projects of this kind now accounts for 27% of the group’s owned land bank.

Could I really buy Bovis?

I’ve been away for the last couple of weeks. While I’ve been gone, the results of my SIF screen have dwindled to just 11 companies. To my surprise, the top-ranked stock that’s eligible for the portfolio is Bovis. So this week I’m going to take a closer look at the numbers and outlook for this firm.

One of the headline attractions for income investors is a forecast yield of 9%. This figure includes planned special dividends, so it’s probably best to assume that the total payout could fall at some point. But this doesn’t necessarily…

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