Popular income stock makes big dividend cut

A much smaller Taylor Wimpey (LSE:TW.) dividend is set to be paid on 15 May after the popular income stock adjusted a distribution policy that has returned £2.8 billion since 2018.

The plan to pay 2.95p a share full-year dividend compares with last year’s award of 4.66p, meaning the total across the 2025 financial year has dropped by 19.5% to 7.62p a share.

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Unlike previous years, the company will include share buybacks in order to continue its policy of returning £250 million or 7.5% of the group’s assets each year.

The £52 million of buybacks will be completed by June, which together with the total dividend outlay of £270 million for 2025 takes the overall distribution to £322 million.

May’s planned dividend is worth £105 million, compared with £165 million when the previously 9% yielding stock paid November’s interim dividend of 4.67p share.

Taylor Wimpey said the tweaking of its policy to 5% of net assets as a dividend and a further 2.5% through buybacks or additional dividends provided greater flexibility.

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The policy, which was introduced in 2018, has provided investors with visibility of the income stream they can expect throughout the cycle including during a downturn.

Taylor Wimpey added: “Going forward, in line with our established capital allocation framework, we remain committed to returning excess cash to shareholders as the cycle evolves.”

The update ends speculation about the sustainability of the distribution policy, which having returned £2.8 billion has been a major draw for income seeking investors as well as those who see the company as a recovery play. The current dividend yield now stands at 7.3%.

Taylor Wimpey shares sit outside the FTSE 100 index for the first time in a decade after falling from autumn 2024’s 160p to this morning’s broadly unchanged level of 103p.

Peel Hunt said today that the change in the capital returns policy provided the main interest in this morning’s annual results, which were otherwise in line with expectations.

The broker, which has a Hold recommendation and 110p target price, said: “UK housebuilding remains challenging, with margins still under pressure and a fragile volume outlook.

“With the return on equity expected to stay below 10% until 2029, we see little reason to chase Taylor Wimpey unless a new Help-to-Buy product emerges.”

The shares have fallen in line with the sector by 6% so far this year, which leaves the builder trading on about 13.5 times Peel Hunt’s forecast 2026 earnings.

Today’s results showed a 6% rise in UK completions as revenues lifted 13% to £3.8 billion but a decline in operating margin to 10.9% from 12.2% the year before meant the underlying profit fell 5.8% to £394.2 million.

Pre-tax profit halved to £146.5 million as the builder booked £243.8 million of exceptional costs in the year, including a cladding fire safety provision increase of £225.8 million.

Guidance for 2026 was in line with January’s trading update, when Taylor Wimpey forecast a lower operating margin and a second-half weighted performance due to the uncertainty caused by the Autumn Budget. 

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It expects an adjusted operating profit of about £400 million, which compares with Peel Hunt’s £414 million estimate and the City consensus of £410 million. The figure rose 1.1% to £420.6 million in today’s results.

Completions are set to be in the range of 10,600 and 11,000, with the year-to-date sales ratio currently slightly weaker at 0.74 per outlet per week versus 0.76 a year earlier.

Chief executive Jennie Daly added: “The spring selling season is progressing well, with encouraging levels of customer interest reflecting the quality of our sites and locations.”

She added that the builder is on track to open more outlets in 2026 than in 2025, with newer land set to help drive margin progress from 2027 onwards.

Morgan Stanley, which said the weaker margin and operating profit guidance was well signalled by the company, has a price target of 90p.

It wrote today: “We are Underweight due to slower margin recovery profile than peers and unfavourable geographic exposure in what is already a tough backdrop.”