Taylor Wimpey looks to reassure that its dividend is as safe as houses

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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Taylor Wimpey is currently the third highest-yielding stock in the FTSE 100 so income-seekers will take encouragement from the reassuring trading statement,” says Russ Mould, AJ Bell Investment Director.

“Although the company notes that profit margins will dip in 2019, it also says that volumes will compensate and ensure that profit forecasts meet expectations. Better still, Taylor Wimpey is now seeing cost inflation pressures ease.

  Dividend yield (%) 2019E Dividend cover (x) 2019E
Evraz 17.3% 1.34 x
Imperial Brands 11.7% 1.34 x
Taylor Wimpey 10.7% 1.12 x
Persimmon 9.6% 1.15 x
BT 7.6% 1.61 x
Rio Tinto 7.6% 1.66 x
Aviva 7.2% 1.92 x
Barratt Developments 7.2% 1.58 x
British American Tobacco 7.2% 1.54 x
HSBC 7.2% 1.41 x

Source: Sharecast, consensus analysts’ forecasts, Refinitiv data

“If this trend continues, and demand remains strong, that could help to support profit margins. Analysts expect Taylor Wimpey’s operating profit margin to dip from 21.4% last to year around the 20% mark in 2019, thanks to cost pressures, an easing in price increases, partly due to geographic mix and only modest volume growth.

Source: Company accounts

“At the first-half stage, the operating margin fell by two percentage points year-on-year, to 18% from 20%, as volumes rose 1% and average selling prices on private completions rose 2%.

Source: Company accounts

“Stable or increasing margins will support cash flow and help to underpin the commitment made by chief executive Pete Redfern and the board to return around £600 million to shareholders in 2019 and 2020 via dividends and special dividends.

Source: Company accounts, company guidance, Sharecast, analysts' consensus forecasts

“Help to Buy continues to support demand for houses (although whether such artificial stimulus is required remains a moot point) and in 2018 the scheme covered 36% of Taylor Wimpey’s volumes. Although Help to Buy ISAs will not be available to new buyers after the end of this month, the Lifetime ISA will continue to provide incentives for first time buyers and a new Help to Buy scheme will kick in when the current one expires in 2021 and run to March 2023.

“Demand is not the issue when it comes to housing – affordability is, after a decade of increases which have outstripped wage growth.

“Research from the Halifax Building Society shows that the average UK house price is £232,249, which is more than nine times the national median gross annual earnings figure of £24,897, according to the ONS. Even if wage growth of 3.6% year-on-year compares favourably to the latest 0.9% increase in the average UK house price, according to the November survey from the Halifax, that means it is very hard to find an affordable property, particularly for first-time buyers.

“It will therefore be interesting to see what the party manifestos have to say about housing and whether reforms of stamp duty are considered, given that Help to Buy has already been extended once again.

“For the moment Taylor Wimpey has a fat order backlog worth £2.7 billion and a net cash balance sheet, so the proposed cash return programme for 2019 and 2020 looks perfectly safe, although management will doubtless be watching out for the results of the General Election as keenly as everyone else.”

These articles are for information purposes only and are not a personal recommendation or advice.


The chart of the week is written by Russ Mould, AJ Bell’s Investment Director and his team.