As a long-term stock investor, I don’t mind the kind of wild market volatility we’re seeing right now. It widens my options when looking for the best cheap UK stocks to buy.
I’ve detailed why homebuilding stocks – including those that I personally own – should remain great stocks to buy. And today, another round of positive data boosted my confidence in the strength of the housing sector.
The latest data from the Royal Institution of Chartered Surveyors (RICS) shows that the UK property market continues to strengthen, despite recent interest rate hikes, the cost of living crisis and the recent removal of stamp duty. Some 79% of surveyors polled by RICS saw house prices rising in February, up from 74% a month earlier.
Improve market conditions
RICS also said the number of new buyer inquiries also rose in February for six months at a trot. It is therefore perhaps unsurprising that RICS Chief Economist Simon Rubinsohn said that “there is still little evidence that the mood music regarding house price or rent expectations is changing.
Rubinsohn added that “the medium-term projections of respondents to the RICS survey continue to gain momentum.“This is despite the huge uncertainty facing the UK economy and suggests that increasing my exposure to the homebuilding sector is a good idea. I’m thinking of doing it by slamming Vistry Group (LSE: VTY).
8.4% dividend yield
One of the main reasons I bought home builders Barrat and Taylor Wimpey was their bright dividend prospects. Their exceptional cash generation has made them ideal purchases for me as I am looking for healthy passive income. This gave them the financial strength to continue paying generous dividends even when times got tough.
The lure of big dividends is what also draws me to buy Vistry Group today. City analysts believe the substantial 60p per share payout will continue to grow over the next two years (to 74.6p and 79.3p in 2022 and 2023 respectively). Following recent share price weakness, these projections create massive dividend yields of 7.8% for this year and 8.4% for 2023.
A cheap UK stock to buy today
Vistry’s share price has been carried away by broader market volatility in recent weeks. The homebuilder just fell to its lowest price since February 2021. And I think that presents a brilliant buying opportunity across the board.
Vistry isn’t just offering big dividend yields in its share price today at around 955p. City analysts believe the company’s earnings will grow 11% year-on-year in 2022. As a result, the stock price now boasts an all-time low price-to-earnings ratio of just 6.8x.
Stocks like Vistry are of course not without risk. If the Bank of England adopts a more aggressive rate hike program, demand for its homes could suffer. Vistry and its peers also face the problem of rising building material prices on their profits. Still, I think the ultra-low valuation of this particular builder reflects more than these dangers. Vistry is a bargain stock that I would buy for years to come.
Royston Wild owns Barratt Developments and Taylor Wimpey. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.