I’ve been keeping a watchful eye on a struggling UK dividend share with huge recovery potential. Now it’s starting to move.
The company is FTSE 100 housebuilder Barratt Redrow (LSE: BTRW). Like pretty much every other UK housebuilder, it’s had a torrid decade. I decided the negativity had gone too far, and the stock was starting to look good value again.
But first, let’s look at why it’s done so poorly.
Why has this UK blue-chip struggled?
Barratt Redrow shares are down 60% over five years, and 36% in the last 12 months. Interestingly, this mirrors the performance of other UK big builder peers, including Persimmon and Taylor Wimpey, which have all been hit by factors entirely beyond their control.
The sector sold off heavily after the shock 2016 Brexit vote. More recently, it’s been hit by resurgent inflation, which has driven up mortgage rates and made UK property even less affordable. The end of the Help to Buy scheme in 2023 then snatched away a key plank of buyer support.
In a further blow, FTSE 100 and FTSE 250 housebuilders have also had to fund a remediation bill of more than £3.5bn to make their cladding safe following the Grenfell Tower disaster.
On the plus side, the Bank of England started cutting interest rates from August 2025 as inflation fell, and more cuts were expected this year. Spirits and share prices rose, but then the Iran war drove the oil price and inflation back up.
Today, markets are betting on some kind of Middle East resolution. As a result, the Barratt Redrow share price jumped 11.25% in the last week.
That makes it the third fastest growing stock on the FTSE 100. It was beaten only by Segro, the subject of a takeover bid, and 3i Group, which posted some upbeat results. There were no results from Barratt Redrow. This was purely down to market sentiment, as investors decided its shares were potentially undervalued.
Can the Barratt Redrow share price continue to recover?
If the Middle East situation calms, and oil prices and inflation retreat, mortgage rates should fall too. There’s talk of inflation falling back to 2% next year, which might revive buyer demand and prices. Investors are keen to get in early.
Barratt Redrow shares still look decent value, with a forward price-to-earnings ratio of just 11.6. The trailing yield is stunning 6.23%, but a word of warning: the board has cut shareholder payouts, and the forecast yield for 2026 is notably lower at 4.87%. That’s still above the FTSE 100 average of 3.3% though.
Last week’s jump could prove yet another false dawn. The sector has seen more than its share of those. Building homes in this country isn’t easy, due to planning rules and labour shortages. The Employer’s National Insurance hike and two large Minimum Wage increases have squeezed margins. The London market is struggling.
I think Barratt Redrow is worth considering with a long-term view, but a word of warning: any recovery is likely to be bumpy.
Should you invest £5,000 in Barratt Redrow right now?
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Harvey Jones owns shares in 3i Group and Taylor Wimpey.
