Big yielder among construction top picks

The “compelling” 9% dividend yield of housebuilder Taylor Wimpey (LSE:TW.) is among a City bank’s recommendations after it named its five top picks in UK construction.

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Berenberg also likes Howden Joinery Group (LSE:HWDN), compounder Volution Group (LSE:FAN), contractor Galliford Try Holdings (LSE:GFRD) and the building products firm Hill & Smith (LSE:HILS) in its new year preview of the sector.

The note was published on the same day that Bank of America upgraded Bellway (LSE:BWY) to Buy, alongside its existing support for Persimmon (LSE:PSN) and Howden. It also removed its Underperform stance on Berkeley Group Holdings (The) (LSE:BKG) but downgraded Barratt Redrow (LSE:BTRW) to Neutral.

Both City firms said they expect the recovery in the housing market to continue at a gradual pace, with the impact of planning reforms not expected to kick in until the second half.

The UK house builder sector continues to trade on a lowly multiple of about 0.9 times book value, versus the 10-year average at 1.5x. Despite four interest rate cuts, the basket share price was largely flat in 2025.

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Bank of America said it favours names with potential to keep delivering resilient operations, instead of simply buying those that underperformed last year.

It added: “We like stocks with stable outlet growth (proactive on planning), resilient sales rates, more affordable pricing and where consensus estimates are conservative.”

The bank sees an approximate 20% total shareholder return upside on the shares of Persimmon and Bellway after lifting its price targets on the pair to 1,600p and 3,200p respectively. Overall, it expects the sector to deliver a 10% total shareholder return this year.

Taylor Wimpey is Berenberg’s pick of the housebuilding sector after it highlighted the “positive differentiation” of an attractive 9% dividend yield.

It said the income potential was underpinned by the combination of the group’s long land bank, which implies lower reinvestment needs, and its already net cash balance sheet.

Berenberg added: “We think a 9% dividend yield is a compelling offer in a housing market that lacks real momentum in 2026.”

In terms of its other UK construction picks, the bank said the market share growth of kitchen supplier Howdens had left it well positioned for a volume recovery when it comes.

It added: “The group has maintained gross margins in the 60-62% range for a long period of time, demonstrating its strong market position and the tight control it maintains on pricing and processes.”

The bank also notes a net cash position going back 15 years, which leaves the group well placed to not only weather the ongoing market torpor but to invest in strategic initiatives. It has increased its price target on Howden to 1000p, which compares with today’s level of 835.5p.

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Ventilation products business Volution also boasts a strong record after growing revenues and adjusted earnings at an annual rate of 13% between 2013-25 and without the need for external equity.

Following the completion of its Fantech acquisition in Australia in 2024, revenue is now broadly evenly split across the UK, Europe and Australasia.

In the coming years, the bank expects the business to provide exposure to a recovery in both new-build and residential repair and maintenance across its geographies, and to continue to look for acquisitions that can further expand and scale the offering.

The bank boosted its target on Volution from 730p to 870p, which compares with today’s price of 649p for a market value of £1.15 billion.

Galliford Try shares have already risen 45% in the past year to 525p, leading to the construction firm’s return to the FTSE 250 index in October.

Over the last five years the group has consistently increased revenue, expanded margins and improved profitability, while maintaining a strong balance sheet.

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Berenberg, which has a price target of 620p. said this has enabled it to pay a sector-leading dividend and return capital to shareholders. It added: “If Galliford Try achieves the targets set out at its 2024 capital markets event, it should grow underlying  at a 12% compound annual growth rate through to 2030.”

FTSE 250-listed Hill & Smith offers a portfolio of niche engineering businesses exposed to the UK and US infrastructure end-markets.

As the company has scaled up, Berenberg said the weighting towards higher margin and better-growth areas has increased, particularly in the US.

It said the US infrastructure exposure benefits from a number of tailwinds, which should support delivery of the group’s 5-7% medium-term annual organic growth target. The bank lifted its price target to 2,750p, which compares with today’s level of 2,280p.