With plans to pay out at least £600 million in dividends in 2019 and a 37% drop in Taylor Wimpey shares, the FTSE 100 house builder now looks like it will be the highest yielding stock in the index in 2019.
Taylor Wimpey said it would pay out a total of £500 million – 15.3 pence / share – in 2018. That’s £160 million in ordinary dividends and £340 million helped by its £525 million net cash pile and strong profitability.
According to stock broker AJ Bell, the share price reflects wider fears over the UK economy, both pre- and post-Brexit, and a slowdown in UK house price growth, even with the extension of the government’s help to buy scheme out to 2023.
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Taylor Wimpey shares – behind the numbers
Taylor Wimpey is due to report on Wednesday, and analysts will be looking at how many homes the builder has completed. It built 14,842 in 2017, which was its highest figure since 2007. It also reported a record average selling price of £264,000 in 2017, which compared well with the £188,000 reported in 2007. Whether Taylor Wimpey can sustain this is another matter.
Taylor Wimpey management is forecasting a 3-4% increase in build costs for 2018 and analysts and investors in Taylor Wimpey shares will be focusing on any build cost estimates for 2019, along with reservation rates and the state of the order book.
Taylor Wimpey had a £512 million net cash position at the end of its last financial year and had grown that to £525 million by the end of its first half. The market likes this and it will go some way to sustaining the value of Taylor Wimpey stock.
Taylor Wimpey share price could be UK housing indicator
Taylor Wimpey is being seen as a good indicator of the relative health of the UK housing market, particularly as it is strongly positioned in the new build end of the market. Brexit and the general perception that the UK economy is losing steam means that investors are going to become increasingly worried about this company.
Taylor Wimpey itself said it was seeing signs of caution in the market when it issued a statement to investors in November. This has been followed by data from Nationwide that has demonstrated the UK housing market is growing at its slowest rate since 2013.
Buyers of Taylor Wimpey shares at this stage are really going to be banking on a turnaround in the UK economy in 2019, and especially in the housing sector. But we really can’t see that at the moment. Unless you want to own that dividend, which may be worthwhile for some longer term investors, we suggest avoiding Taylor Wimpey shares for the time being.
