Taylor Wimpey becomes latest FTSE 100 firm to rejoin the dividend list

Russ Mould
2 March 2021

“Taylor Wimpey’s confirmation of its return to the dividend list, first hinted at last November, makes it the twenty-sixth FTSE 100 firm to resume payments or promise to do so. The company is already outlining plans for an interim dividend in 2021 and special dividends in 2022, so chief executive Pete Redfern and his team clearly do not lack confidence in either the housing market or their ability to make the most of it,” says Russ Mould, AJ Bell Investment Director. “With the Government about to unveil yet another scheme to stoke demand for houses – even if the problems are a shortage of supply and prices that are too lofty rather than too little demand – you can see why that would be the case, even allowing for Taylor Wimpey’s decision to set aside £125 million in 2021 to cover fire safety improvement in apartment buildings built over the last two decades.

“Taylor Wimpey’s final dividend payment for 2020 and interim payment for 2021 are both based upon a policy to pay out 7.5% of company net assets over the course of a year. With net assets (or shareholders’ funds) of £4 billion, that equates to £301 million and Taylor Wimpey is therefore planning a final payment of 4.14p for 2020 and an interim figure of the same for 2021.

 
Source: Company accounts

“As profits recover, shareholders’ funds should start to grow and offer scope for increases to those payments, as well as special dividends.

 
Source: Company accounts

“Taylor Wimpey is already setting out its stall for higher profits, too. The company has deployed the £510 million it raised from shareholders last summer, and more besides, to snap up land and add to its bank of plots. Buying land cheaply is really the secret sauce when it comes to housebuilders’ profits so last year’s swoop should leave Taylor Wimpey well set, so long as it maintains build standards and keeps its customers happy.

“The firm is already targeting a rebound to an operating margin of 18.5% to 19% in 2021, after 2020’s dip to barely 10%, and Mr Redfern and team are sticking to their medium-term target of 21% to 22%.

 
Source: Company accounts

“Government support for the housing market will surely help to underpin these goals. No less than 46% of Taylor Wimpey’s completions used the Help to Buy scheme in 2020, so the firm will have been pleased to see both the latest extension of that programme in December and also talk that The Budget will unveil a new Government mortgage guarantee scheme for properties up to £600,00 in value, even if that is not restricted to new-build dwellings.

“Stoking demand when the market is already tight will surely only add further to fuel house prices, something that can help Taylor Wimpey’s profit margins and cash flow, especially if it times its land purchases well. Whether that reopens the debate about how taxpayer-backed schemes are potentially funnelling money straight through to incentivised management teams and shareholders remains to be seen, but such concerns have been raised in the past.

 
Source: Company accounts

“Shareholders must also decide whether Taylor Wimpey’s shares represent good value or not, given the potential for a rapid rebound in profits and shareholder pay-outs in the wake of the pandemic. 

“The shares trade at 1.5 times historic net asset value per share, smack in the middle of the range which many investors use as a rule of thumb – one times book value or less is a potential bargain and two times book value or more may be a sign that the shares are getting fully valued. This litmus test also puts Taylor Wimpey in the middle of the pack, compared to its FTSE 100 and FTSE 250 peers.

“The cheaper names are Vistry and Crest Nicholson, firms where profit margins have recently lagged and thus where there is most to prove. However, investors could see those as having the greatest potential in terms of capital returns, especially as chief executives Greg Fitzgerald at Vistry and Peter Truscott at Crest Nicholson are working with their teams and colleagues to improve operational and financial performance.”

 

Historic

2021E

2021E

2021E

 

Price/NAV(x)

PE (x)

Dividend yield (%)

Dividend cover (x)

Vistry

0.88 x

7.6 x

5.2%

2.51 x

Crest Nicholson

1.03 x

9.8 x

4.1%

2.50 x

Redrow

1.22 x

9.4 x

3.0%

3.48 x

Bellway

1.23 x

10.8 x

3.2%

2.92 x

Barratt Developments

1.48 x

11.1 x

3.6%

2.50 x

Taylor Wimpey

1.53 x

11.3 x

4.5%

1.96 x

Berkeley Homes

1.73 x

12.0 x

5.2%

1.60 x

Countryside Properties

2.04 x

21.0 x

1.9%

2.49 x

Persimmon

2.51 x

11.5 x

8.7%

1.00 x

AVERAGE

1.60 x

11.4 x

5.0%

1.76 x

Source: Company accounts, Marketscreener, consensus analysts’ forecasts, Refinitiv data

Russ Mould
Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993 he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk

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