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Many homebuilding stocks have come under pressure due to macroeconomic headwinds. FTSE 250 Authority Repeat (LSE:RDW) is no exception. My investment strategy has always been to buy and hold for the long term. With that in mind, should I buy Redron shares for long-term growth and returns? Let’s take a closer look.
Redrow shares continue to fall.
As a quick reminder, Redrow is one of the largest housebuilders in the UK. Initially starting out as a commercial developer, it switched to building houses in 1980. Today, the Welsh-based company has over 14 sites across the UK and employs over 2,000 people.
So what’s going on with Redrow shares right now? Well, as I write, they trade at 478p. This time last year, the stock was trading for 681p, a 29% drop over the 12-month period. Many UK stocks have fallen in recent times due to macroeconomic issues such as high inflation, rising prices and a supply chain crisis.
Risks to remember
I believe Redrow shares have fallen due to the above issues. In addition, there is no end to these reasons, so they may face additional pressure. Increasing costs can put pressure on profit margins, which often results in returns in the form of dividends. Supply chain issues can affect operations and sales. Another negative is the interest rate employed to fight rising inflation. This would make it harder for consumers to buy homes due to higher mortgage rates, and could hurt short-term demand.
Finally, home builders are traditionally seen as good income stocks. I know a dividend is never guaranteed. They can be canceled at any time to save money in today’s somewhat volatile economy. I’ll keep an eye out for the redrow split.
The case of the bull and my judgment
So onto the positives then. Firstly, I believe Redrow will benefit from the state of the UK housing market. Demand for housing exceeds supply by a fair margin. With this in mind, I believe Redrow should be able to turn this interest into growth performance and ultimately returns to shareholders.
Further, at current levels, Redrow shares are great value for money at a price-to-earnings ratio of just 6.
As well as cheap stocks, redrows increase my passive income stream. The current dividend is over 6%. This is three times the FTSE 250 average of 1.9%.
Overall, I believe Redrow could be a good stock to grow my holdings over the long term. I am aware of the current headwinds and expect the shares to have some volatility. To sum up, the growing market, increasing demand, income potential and currently cheap stocks helped me make my decision.