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Market Wrap-up for Jun. 16 - Home Builders in the Spotlight

U.S. equity markets had a lackluster start this morning as investors turned their attention to the Fed’s two-day meeting and ongoing Greece bailout talks.

But while these major economic events have been taking over headlines, many might have missed a key report yesterday: the NAHB Builder Sentiment.

Home Builders are Optimistic

Yesterday, U.S. home builder confidence for June was reported at 59 – 5 points above expectations and the highest reading in nine months. The report showed higher confidence levels across all regions in the U.S., particularly in the Midwest.

Earlier this month, construction spending rose 2.2% month-over-month. Just this morning, building permits were reported at 1.28 million, above the 1.11 million prediction. Housing starts, however, came in below estimates at 1.04 million.

Low interest rates, combined with relatively better economic conditions, have pushed the housing market higher – albeit slowly – in recent years. Home prices have also risen, particularly in urban areas where job growth has picked up more rapidly than in rural areas. A main concern for investors, however, has been that home prices may continue to rise out of step with buyers’ incomes, which have not seen the same impressive growth in recent years.

A Closer Look at Home Builder Equities

While the home building industry may see some bumps in the road up ahead, particularly when interest rates rise, we’d like to take the time to highlight some of the key sectors and dividend-paying stocks in this corner of the market:

  • Residential Construction Stocks: There are only seven companies in this sub-sector, which combined have an average dividend yield of 1.87%. Remember, however, that these stocks are still a long way from their pre-crisis highs and many are struggling to increase and/or maintain dividend payouts.
  • Home Improvement Stores: Only two names make up this sub-sector: Home Depot (HD ) and Lowe’s (LOW ). Home Depot has seen tremendous growth since the late 90s and has paid a dividend every year since 1993. Lowe’s falls into the Dividend Achiever category since it has been consistently raising its dividend for over 50 years.
  • General Building Materials: Over a dozen stocks make up this sub-sector, averaging a dividend yield of 2.65%. Two names in particular are at the top of the list: RPM International (RPM ) and Valspar (VAL). RPM has consistently increased dividends since 1975 and currently pays an annual dividend of $1.04. Valspar also has a solid dividend track record; most recently the company expanded its business, acquiring the performance coating business from Quest Specialty Chemicals.

As always, before making any investment decisions be sure to do your homework, dig down deep into the fundamentals to see whether or not any of these picks are right for you.

Be sure to follow us on Twitter @Dividenddotcom.