With mortgages getting cheaper and the Labour government planning to build 1.5 million homes by 2030, some fund managers are increasingly weighting towards the UK housebuilding sector, which in boom years also paid out generous dividends to investors.
As part of income week, we look at three dividend-paying UK property stocks that are screening as undervalued by Morningstar metrics.
Persimmon Ups Building Targets, Holds Dividend
Tineke Frikkee, portfolio manager of the Waverton UK Fund, which has a Bronze Medalist rating, likes Persimmon PSN. Persimmon is the only UK housebuilder held in the fund because it offers higher profitability than any of the others in the sector, she says.
In her view the business retains more control over its costs by producing some of the basic materials needed to build homes such as bricks and tiles, which have soared in price in recent years. Frikkee also backs the stock because its properties are around 10% cheaper than the average UK house price, as they are principally located in northern England and Scotland.
Persimmon has reiterated plans to build 11,000 to 11,500 homes this year, up from 10,664 last year. Recent annual profits showed a rise on the previous year and also beat forecasts.
UK Affordable Housing
Jack Fletcher-Price, associate equity analyst at Morningstar, agrees that Persimmon’s portfolio of more affordable housing is a strength.
“Persimmon is levered most to the markets that are going to be the most resilient and that will bounceback the hardest, which will be demand from first time buyers who should benefit from government incentives and interest rates falling the most,” he says.
According to Morningstar analysis, the stock is significantly undervalued, trading in 5-star territory. Persimmon’s shares are currently trading at £13.66, having risen 12% so far in 2025, below Morningstar’s fair value estimate of £23. The company currently has a dividend yield of 4.4%.
This year Persimmon will pay a final dividend per share of 40p in July, the same as in 2024, but down from levels it paid in 2023 of 60p. The company’s 10-year capital allocation plan concluded in 2022, effectively resetting dividends, but Persimmon says any “excess capital will be distributed to shareholders from time to time, through a share buyback or special dividend”.
Bellway Can Boost Its Dividend Yield
Katen Patel, co-portfolio manager of Neutral-rated JP Morgan UK Equity Income fund, backs UK housebuilder Bellway BWY although its dividend yield is currently 2.18%.
Patel believes that Bellway’s dividends will bounceback to previous highs.
“Bellway is a company that can obviously be quite cyclical. Historically it has had a 5% to 6% dividend yield but at the moment its slightly lower. But we expect that to grow significantly and that is driven by interest rates coming down this year,” he says.
Patel believes future earnings will also benefit from government housing reforms, increased supply, and strong house prices, which in turn will boost Bellway’s capacity to pay out higher dividends.
For Grant Slade, senior equity analyst at Morningstar, the company also stands out for its long-term land holdings, which should provide development opportunities and boost future profits.
Its final dividend for 2024 was 38p, down from 95p in 2023 and 2022. According to Morningstar analysis, the stock is undervalued, trading in 4-star territory.
The stock is currently trading at £27.09, with shares up around 10% in 2025, below Morningstar’s fair value estimate of £38.50.
At the interim stage Bellway reported an increase in pre-tax profits in the first half of 2025.
Berkeley Also an Undervalued Housing Stock
Another undervalued housing stock with a relatively low dividend yield is Berkeley Group BKG, which focuses on building higher quality houses in the southeast of England.
The stock is currently trading at £42.30 after a gain of nearly 7% this year, below Morningstar’s fair value estimate of £50.80.
Berkeley currently has a dividend yield of 1.59%. Its dividends have varied in size in recent history. In 2024 it paid a total dividend of 66p, down from levels in 2023 of 128.74p, but above the 2022 payout of 21.25p.
Morningstar’s Fletcher-Price says it differs from its rivals not just in offering more expensive houses, but in focusing on brownfield development, which tends to be easier for planning permission.
Brownfield projects can be more complex, but allow for the redevelopment of land previously used for commercial and industrial purposes. This focus on brownfield development enables it to locate sites in built-up areas, in particular London, Birmingham, and the south of England, Fletcher-Price says.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
