3 reasons to buy Fletcher Building Limited (Australia)

Recent results released by Fletcher Building Limited (Australia) (ASX: FBU) were strong and showed that the company delivered an 11% year-on-year increase in earnings. With shares having performed reasonably well during the course of 2014 (they are up 7% since the turn of the year) and the Aussie and New Zealand housing markets showing strength, now could be a good time to add Fletcher Building to your portfolio. Here are three key reasons why.

  1. While an 11% increase in the bottom line was impressive, Fletcher Building is all set to deliver even better results moving forward. Indeed, the company is due to post earnings numbers that are 22.9% higher in each of the next two years. This means that in two years’ time, the company’s bottom line could be around 51% larger than at present, which would clearly be great news for investors. Obviously, the RBA’s decision to hold interest rates at 2.5% is giving the housing market (and Fletcher Building) a big boost.
  2. Fletcher Building also offers great value for money right now. For instance, shares in the company currently trade on a price to earnings growth (PEG) ratio of just 0.8. This is massively below the ASX’s PEG of 2 and shows that, while Fletcher Building has a P/E that many investors may be put off by (it currently stands at 18.4 versus 16.4 for the ASX), the company actually offers exceptional growth prospects at a very reasonable price.
  3. Due to its strong earnings growth potential, Fletcher Building is also due to increase its dividend at a rapid rate. For example, over the next two years it is expected to increase dividends per share by 10% per annum. This should help to raise the company’s yield (assuming the share price stays where it is), although the current yield is hardly lacking. While unfranked, Fletcher Building currently yields 4.2%, which means that it offers strong income potential, stunning growth prospects and a valuation that seems rather low given its upbeat recent results. As such, it could prove to be a sound investment at current price levels.

A value price tag + growth + big dividends!

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned

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