An Interesting Way to Play the Housing Recovery

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Most evidence suggests the housing market in the United States is continuing its steady, albeit slow, recovery from the depths of the 2008 financial crisis.  Several data points suggest the housing market is returning to a state of health.  Recently, the National Association of Realtors reported that existing home sales dropped 1.0 percent last month to a seasonally adjusted annual rate of 4.94 million units.  While the drop was disappointing and unexpected, that was still the second-highest rate of sales since November 2009.

At the current pace of sales of existing homes, inventories would be exhausted in 4.4 months, the lowest rate since May 2005.  Nationwide, the median price for a home resale was $180,800 in December, up 11.5 percent from a year earlier.  Furthermore, distressed sales fell to 24 percent of total sales from 32 percent a year ago.  It finally seems as though the housing market is on solid footing.  It may be wise for investors to consider a way to gain from the trend.  As a result, here are a few stocks that may be flying under most investors’ radars.

Leggett & Platt (NYSE: LEG) designs and produces furnishings and fixtures.  Its major operating segments include Residential Furnishings, Commercial Fixturing and Components, and Industrial Materials.  The company has an enviable dividend track record.  The company has increased its annual dividend for 41 consecutive years, at a 13% compound average growth rate.  Notably, only 11 members of the S&P 500 have a longer string of consecutive annual dividend increases.  The stock has had a great run, and as a result trades for a trailing price-to-earnings ratio greater than 21 times.  At current prices, Leggett & Platt yields 3.8%.

Watsco (NYSE: WSO) distributes air conditioning, heating, and refrigeration equipment in the United States.  Watsco has paid dividends for over 35 consecutive years and has consistently paid increasing dividends over the last decade. In October 2012, given the uncertainty over the impending fiscal cliff, Watsco’s Board of Directors approved the payment of a special dividend of $172 million ($5.00 per share).  Watsco reported revenues increased 14% during the first nine months of 2012, and earnings per share increased 11% during the same period.

Whirlpool (NYSE: WHR) engages in the manufacture and marketing of home appliances worldwide. Its products include laundry appliances, refrigerators and freezers, cooking appliances, and dishwashers.  The company has a market value of $8 billion and pays a dividend yielding almost 2% at recent prices.  The company celebrated its 100th anniversary in 2011, and raised its dividend that year by 16%.  Whirlpool has experienced quite a run up since the beginning of 2012, more than doubling its share price.  The company appears fully valued, with a trailing P/E of 22 times.

The Bottom Line

While many investors may think the homebuilder stocks are the best way to gain access to the housing recovery, these three stocks might be a great alternative.  Operating performance for many homebuilders can be volatile, and the homebuilding stocks don’t often pay dividends.  These are three stocks with long histories of paying and raising dividends to shareholders that are an interesting way to play the rebound in the housing market.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Watsco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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