Rising rents boost Grainger's payout by 11%

The build-to-rent boom continues as landlords passing on the cost of interest rates, a lack of stock, a frozen house-buying market, and economic migration are all working together to keep housing rents rising at their fastest pace on record.

As such, it should come as little surprise that Grainger (GRI), the UK's largest listed residential landlord, reported a 12 per cent boost in net rental income in its results for the year to 30 September. The upshot was an 11 per cent rise in dividends.

Chief executive Helen Gordon knows rental growth will return to normal eventually. She told Investors' Chronicle that it will follow wage inflation, which looks set to fall as general inflation comes down. With dividend growth linked to net rental income growth, investors should prepare for slower dividend growth when rents do stabilise.

The company is well prepared for more normalised trading, buying sites assuming 3.5 per cent annual rental growth, but this does not mean it is moving slowly. It achieved a record delivery of new stock over the year, taking its total portfolio to more than 10,200 homes, and revealed a joint venture (JV) with Network Rail and Bloc Group to build another 2,000 homes in the coming years.

The JV announcement gets to the heart of Grainger's strategy. The company likes to build assets close to train stations because most of its tenants are people who live in cities without cars. The company already has a joint venture partnership with Transport for London (TfL) to build homes on TfL's vast land portfolio near its stations.

High interest rates have dragged down Grainger's net asset value (NAV) and pre-tax profit. However, the operational strength of the business is what matters. This company trades at around NAV for a reason. Buy.

Last IC view: Buy, 229p, 24 Aug 2023