ii view: income play Taylor Wimpey stays optimistic

Shares for this housebuilder are down by more than a third year-to-date and sit on a highly attractive estimated future dividend yield. Buy, hold, or sell? 

First-half results to 3 July 

• Revenue down 5.4% to £2.08 billion 
• Pre-tax profit up 16% to £334.5 million
• Interim dividend up 11.6% to 4.62p per share
• Net cash down 29% to £642 million

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Chief executive Jennie Daly said:

“I am pleased to report an excellent financial and operational performance with completions in the first half slightly ahead of expectations. 

“While we recognise and are closely monitoring wider macro-economic and political uncertainty, housing market fundamentals remain positive, supported by an enduring supply and demand imbalance and good availability of attractively priced mortgages.”

ii round-up:

Taylor Wimpey (LSE:TW.) was formed from the merger of George Wimpey and Taylor Woodrow back in 2007. It now operates across 23 UK regional divisions as well as a small Spanish housebuilding business.  

For a round-up of these latest results, please click here.

ii view:

Taylor Wimpey sold its construction business in 2009 along with its North American business in 2011. Today, it is the fourth-largest UK listed housebuilder by stock market value at nearly £4 billion, behind Persimmon (LSE:PSN), Barratt Developments (LSE:BDEV) and Berkeley Group Holdings (The) (LSE:BKG).  

For investors, elevated inflation and expected required interest rate rises from the Bank of England cannot be forgotten. A cost-of-living crisis for consumers, pressuring mortgage payments, also warrants consideration. As do rising costs generally for businesses, slow planning applications and stretched UK government finances limiting room for sector assistance going forwards if needed. 

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More favourably, management’s expectation for profit to be at the upper end of analyst forecasts offers reassurance. Prices rises are offsetting higher costs, the forward order book remains robust, while provision for renewed cladding costs continues to be made. On balance, and with the shares sat on an estimated future dividend yield of over 8%, interest from income investors is likely to remain.  

Positives: 

• Prices rises offsetting higher costs
• Attractive dividend yield (not guaranteed)

Negatives:

• Backdrop of rising interest rates
• Land market remains very competitive

The average rating of stock market analysts:

Strong buy