Should you buy Cedar Woods Properties?

Cedar Woods Properties (ASX: CWP) is a property developer, focused on Western Australia and in suburbs around Melbourne, Victoria.

Western Australia’s population is growing steadily, and not just because of the mining boom. Migration from other states and from overseas has been strong for a number of years, and all those people need somewhere to live. Rental prices in the city of Perth rival those of its bigger sister’s Sydney and Melbourne, and rental vacancies are very low.

As the mining boom recedes, many of the estimated 120,000 mining workers are beginning to trickle back into the housing industry. It is estimated that around 25% of those workers began their careers in the housing industry. But Minster for Housing, Bill Marmion says that there is not enough to handle the growing demand.

The housing industry is currently struggling to build the number of houses in Perth that will be needed in future. And that’s where Cedar Woods is perfectly placed. The company has a strong property portfolio in and around Perth, and has built a number of successful housing projects in recent years.

In 2013, the company reported a 6% increase in net profit to $36.3 million, and is forecast to achieve a net profit after tax of $40 million in 2014. Despite a dividend payout ratio of just 50%, at the current share price of $6.72, Cedar Woods is still paying a fully franked dividend of close to 4%, and that is likely to rise as earnings grow.

The company’s strong financial results have seen the share rise by 57% over the past year, compared to the ASX 200 Index (Index: ^AXJO) (ASX: XJO) gain of 22%, and has outperformed fellow property developers Finbar Group (ASX: FRI) and FKP Property Group (ASX: FKP) handsomely.

Foolish takeaway

With the company on track for another strong year, now might be the perfect time to add Cedar Woods Properties to your watchlist.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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