News of more generous dividends helps to drive up shares in housebuilder Taylor Wimpey (TW.) by 2.8% to 200.7p.
At this price the shares trade on a dividend yield of 9.1% based on the 18.3p per share implied by the £250m and £350m pledged in ordinary and special dividends for 2019.
The company looks comfortable paying out this cash as it sees scope to squeeze more out of its assets, increasing return on net operating assets to 35%.
Chief executive Peter Redfern says this will be achieved by ‘working our existing land assets harder and smarter’.
The company hopes to maintain operating profit margins at the 21% to 22% mark.
Sales rates year-to-date increased to 0.85 homes per outlet per week from 0.81 in the year to April’s trading statement. This is slightly short of the 0.93 posted for the same period a year ago.
The company also reports 70% of expected completions for 2018 are already completed or forward sold.
‘Assuming the housing cycle holds up as expected, the group looks set to deliver sustainably strong returns and margins with attractive dividends,’ says Cannacord analyst Aynsley Lammin. ‘The update all looks very sensible to us.’
Davy analyst Colin Sheridan says the increased dividend for 2019 will be a positive catalyst for Taylor Wimpey. ‘The £600m to be returned takes the yield above 9%, with almost half of this amount (£250m) seen as sustainable in a downturn. ‘New targets point to a company striving to sustain very strong margins and returns.’
AJ Bell investment director Russ Mould says bar some economic uncertainty around Brexit, conditions for housebuilders are very supportive in terms of government policy and low interest rates.
‘However, Taylor Wimpey will need to prove to investors it can deliver the targeted level of performance even when the backcloth is not so helpful,’ he adds.
