Income stock Taylor Wimpey shares good news on dividend policy

Construction work by Taylor Wimpey on the former Shorncliffe Garrison site in Folkestone, Kent. The builder is constructing more than 950 homes. Credit: Andrew Aitchison/In pictures via Getty Images.

New targets and reassurance on the dividend today failed to inspire high-yielding Taylor Wimpey (LSE:TW.) shares after this year’s run as the worst-performing large-cap housebuilder.

The FTSE 250-listed stock stayed near 103p as the company’s much-anticipated strategic update was clouded by a subdued assessment on current market conditions.

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Taylor sits outside the FTSE 100 index for the first time in a decade after a 16% year-to-date fall for shares, having started September near its mini-Budget low of 2022 at 92.7p.

A 9% dividend yield means the shares remain popular with interactive investor customers after they ranked as the sixth-hottest ISA investment in the week to 26 September.

Shareholders are due to receive an interim dividend of 4.67p a share on 14 November, representing an outlay of £165 million under the company’s policy to distribute 7.5% of net assets or at least £250 million annually.

It has returned £2.7 billion to shareholders since this policy was introduced in 2018, which Taylor Wimpey said provided investors with visibility of the income stream they can expect throughout the cycle including during a downturn.

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The group added at August’s half-year results: “We have maintained a strong balance sheet and excellent land bank giving us the capacity to grow whilst continuing to pay this dividend.”

Today’s presentation to City analysts contained no change in capital allocation policy as Taylor Wimpey said it would continue to prioritise balance sheet strength, investment to support growth across the cycle and a “reliable dividend for shareholders”.

It highlighted a medium-term target for UK completions of 14,000, which compared with unchanged guidance for a figure of between 10,400 and 10,800 in 2025.

The builder said: “Growth will be driven by higher outlet numbers, without the need for net land investment as we unlock the value of our strong, existing land bank and reinvest in smaller sites.”

A target to deliver an operating margin of between 16% and 18% compares with the 12.2% achieved in 2024. Taylor Wimpey said this will be achieved from operating leverage as volumes grow and as it cycles into newly purchased land with the benefit of improved margins.

Return on net operating assets is seen improving to more than 20%, from 2024’s 10.9%.

Peel Hunt said the targeted medium-term returns were about 30% below prior levels on a pre-tax basis, which it anticipates would have “clear implications” for the valuation multiple the business can command.

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The bank, which has a 110p target price, said: “While we welcome any measures to improve asset turn and returns to shareholders, we remain conscious of the fact that – even if the strategy proves successful (converting the group’s long land bank has proved a challenge in recent times) – returns would remain well below prior levels.”

Taylor Wimpey said today that current trading has been in line with expectations as it continues to target a full-year operating profit of £424 million. That would compare with last year’s £416.2 million and £470.2 million in 2023.

The company reported a net private sales rate of 0.65 per outlet per week in the nine weeks to 28 September, down from 0.7 a year earlier amid the impact of the delayed UK Budget on short-term customer confidence.

It is currently operating from 215 outlets, a level it expects to increase as part of efforts to unlock value from its strong land bank and redeploy capital for growth.

The group added: “We remain confident in the underlying fundamentals of the UK housing market, with its pressing need for new homes, and in the medium-term potential of the business to deliver profitable growth and maximise shareholder returns.”