Taylor Wimpey repeats 13% dividend yield promise

Named by an enthusiastic backer recently as one of 'Brexit Britain's best value stocks', Graeme Evans examines the detail in this housebuilder's latest update.

With a forecast dividend yield now around 13%, Taylor Wimpey (LSE:TW.) shareholders have every reason to be jittery as they contemplate whether Brexit will put paid to this year's promised return of £600 million from the housebuilder.

Only nine days into 2019, they passed their first major hurdle when the FTSE 100 company delivered a surprisingly upbeat trading statement, adding that it was starting the year with a "very strong" order book.

This was music to the ears of investors as Taylor Wimpey shares surged 7% to 150p and rival housebuilders including Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) rose by as much as 4%.

In the same way as this week's retail updates have not been as bad as many feared, Taylor Wimpey's New Year trading statement suggests that the doom and gloom merchants may have held too much sway in recent weeks.

Taylor's shares dipped below 128p in early December, weeks after long-time CEO Pete Redfern reported some signs of customer caution, particularly in the South East. At this level, shares were near to their lowest point in four years.

Source: TradingView (*)  Past performance is not a guide to future performance

Redfern remains mindful of housing market sensitivity, but said today there was no reason to change guidance for stable volumes in 2019. He is also confident of delivering “long term value for shareholders and growth into 2020."

This is based on a strategy set out last May, when Redfern pledged to increase returns on net operating assets to 35% and to boost landbank efficiency.

From a shareholder perspective, the strategy will mean an enhanced ordinary dividend of about 7.5% of net assets, or at least £250 million a year across the cycle.

A special dividend for 2019 of £350 million, or 10.7p a share, will be paid in July subject to shareholder approval, bringing the 2019 return to at least £600 million. It’s why UBS recently described the company as one of Brexit Britain’s best value stocks.

As well as the high yield, they noted that a post-referendum reduction in the price/earnings multiple to a lowly 6.6x had come despite a 22% rise in earnings per share. UBS currently has a price target of 190p.

Significantly in terms of the dividend, Taylor Wimpey said today it ended 2018 with a net cash balance of about £644 million, which is ahead of expectations due to the timing and quantum of land investment. 

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Home completions growth of 3% in the 2018 financial year to just under 15,000 was stronger than UBS's forecast of 2%, but the average selling price was weaker at £264,000.

The company ended the year with an "excellent" forward order book worth £1.78 billion, which represents about 40% of this year's revenue expectations.

Taylor Wimpey added that robust customer demand for new build homes was underpinned by low interest rates and a wide choice of mortgage deals.

The group said: "Employment trends also remain at healthy levels and customers will be able to benefit from the Government's Help to Buy scheme until 2023.

"However, we will continue to closely monitor market conditions for any potential impact on customer confidence in light of the wider political and economic uncertainty."

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