2020 has proven to be a profitable year for new construction. Already-high demand was driven even higher by COVID-19 housing shortages, leading to record-high new housing starts in late summer and fall. D.R. Horton (NYSE: DHI), the largest homebuilder in the United States, is definitely benefiting from the surge in new construction. But does that mean the company is a buy over the long haul? Let's take a look at who D.R. Horton is and where it stands today, as well as look forward to determine if it's a buy right now.
Building homes and beyond
D.R. Horton, a Texas-based company was founded in 1978 and has consistently been the largest homebuilder by volume since 2002. It currently operates in 88 markets in 29 states. For the previous 12-month period ending Sept. 30, 2020, D.R. Horton completed and closed 65,388 homes.
New-home construction from its four home building companies, D.R. Horton, Express Homes, Freedom Homes, and Emerald Homes, which produce high-quality homes that range in value from $100,000 to $1 million, is the company's main bread and butter. But D.R. Horton also earns income through its subsidiary companies, which include mortgage, title, and insurance services.
Strong performance, with a strong outlook
Net income for the company increased 47% through Sept. 30 when compared to the same period in 2019. Revenues also increased 15% year over year, to $20.3 million, while book value per common share increased 20% to $32.53.
As a whole, the company saw outstanding results for 2020, surpassing previous highs, and its stock price reflects its stellar performance as of late, with share prices being roughly 19% above pre-coronavirus levels. Dividends increased 14% to $0.20 per common share in fourth quarter 2020, providing investors a return of less than 1%,dismal compared to the returns paid from high-dividend-paying real estate investment trusts (REITs).
D.R. Horton is a seasoned company that may be riding a market high right now but realizes cyclical waves of demand will inevitably dry up and return to a more balanced level. To help maintain strong growth despite fluctuations in the market, the company recently acquired Braselton Homes, the largest home builder in Corpus Christi, Texas, adding 95 lots, 90 homes in inventory, and 125 homes in sales order backlog to its portfolio.
The company is also in a fairly stable financial position, with a total debt-to-total capital ratio of 17.5% as of Sept. 30 and $2.6 billion available for homebuilding capital.
D.R. Horton does have $400 million senior position debt maturities coming due in the next 12 months but should be more than financially capable of paying those maturities while maintaining current developments and dividend payouts.
The Millionacres bottom line
I think D.R. Horton is a strong company with a good track record, balanced portfolio, and opportunity for future growth, particularly over the next year or two as developers continue to work to balance supply and demand for housing. Right now, investors are paying top dollar for this real estate stock in exchange for low returns, meaning investors interested in purchasing it need to be patient buying this stock, less for the dividend returns but more for the growth potential over time.