Berkeley Group Holdings Plc (BKG), the U.K.’s largest homebuilder by market value, rose the most in almost three years in London trading after saying it will pay shareholders dividends of 1.7 billion pounds ($2.7 billion) over the next decade.
Berkeley advanced 11 percent, the biggest increase since July 2008, to 1,254 pence at the 4:30 p.m. close in London. Investors will receive three dividends totaling 13 pounds a share by 2021, the Cobham, England-based company said in a statement today.
The plan is part of Berkeley’s strategy to limit risk by minimizing the size of the company. Berkeley abandoned high- volume homebuilding in 2004 and concentrated on houses rather than apartments in urban areas. It also focused on London and the southeast England, where the recovery in house prices has been the strongest.
“You want to keep a natural size and manage risk over the cycle,” Managing Director Rob Perrins said in a telephone interview. “If it’s right to do so, we’ll shrink the business right back again at any time or shrink the land bank back.”
Net income increased to 95.1 million pounds in the 12 months through April from 79.7 million pounds a year earlier, the company said in the statement. The average estimate from a Bloomberg survey of five analysts was for profit of about 95 million pounds.
“The surprise in today’s announcement is that the company is now confident in the sustainability of the market, and this should benefit all the housebuilders’ shares, especially those with decent London and South East exposure,” Liberum Capital wrote in a note today.
Berkeley shares have gained 41 percent this year, giving it a market value of 1.65 billion pounds. That compares with an 18 percent rise in the Bloomberg EMEA Homebuilders Index, which advanced 4 percent today.
Investors will receive 4.34 pounds a share on 30 September 2015 and two further payments of 4.33 pounds will follow in September 2018 and 2021, the company said.
In 2008, the company deferred a 3-pound payout to investors to build up cash and take advantage of falling land values amid Britain’s biggest housing slump in 25 years.
“We’re not an EPS growth model at all,” Perrins said. “It’s a lower-risk model to optimize returns to shareholders. We can manage the risk of a cyclical market. The market is very volatile.”
To contact the reporter on this story: Chris Spillane in London at firstname.lastname@example.org.