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Why I love the Taylor Wimpey share price and its massive 10% dividends

Alan Oscroft
Models of houses on top of pound coins

Folks have been fearing a downturn in the housing sector for a while now, but first-half results from Barratt Developments in February showed no sign of it, and that reinforced my colleague Royston Wild’s confidence in the company’s dividends — currently set to yield in excess of 7%.

Good results

I think he’s right, and I think the same about Taylor Wimpey too. Taylor Wimpey’s dividends, including special payments, are expected to deliver a 10% yield this year. We won’t see that level every year, but I do expect to see the firm’s ordinary dividends providing very attractive yields for years to come.

Full-year results, also released in February, showed the same positive trend as seen at Barratt, with chief executive Pete Redfern saying: “2018 was another strong year for Taylor Wimpey with good progress against our strategic priorities.

Crucially, he added: “Despite ongoing macroeconomic and political uncertainty, we have made a very positive start to 2019 and are encouraged to see continued strong demand for our homes.

House prices

But the talk is all about house prices, so where are they going? Surprisingly, according to the Halifax, February saw a 5.9% rise in prices (after a 3% fall in January), pushing the average property price up to £236,800.

There has been some doubt cast on these latest figures, but at least we’re not looking at an obvious slump. And even if we do see some cooling, I really don’t see how that will afflict housebuilders like Taylor Wimpey. The company was making nice profits back when house prices were 10% lower than today, and will surely still be able to do the same if we see a 10% fall — land prices would fall too, and the balance would be little changed.

Taylor Wimpey ended 2018 sitting on record net cash of £644m, even after having paid out £500m in dividends — and it has already declared its intention to pay out £600m in dividends for 2019.

If our FTSE 100 housebuilders weren’t enough, down in the FTSE 250 there are some pretty big dividends on the cards from Crest Nicholson Holdings (LSE: CRST) too.

Hiccup

Crest Nicholson is going through a period of earnings fallback, with a 16% EPS dip last year expected to be followed by a further 13% this year — and that’s helped push the share price down 20% over the past 12 months.

The dividend has been held at 2017’s level and is expected to stay there for the next two years, but the share price fall has pushed the yield up beyond 9% now.

At the end of January, fellow Motley Fool writer Rupert Hargreaves liked the look of the then-10% yields, and it seems the market has followed him as the shares have since blipped up a little — including a 5% rise on the day as I write.

Back on track

Crest’s falling earnings were blamed by chief executive Patrick Bergin on “some challenges in London and with sales at higher price points where political and economic uncertainty has adversely impacted customer demand.”

But a revised focus is expected to reduce pressure on margins and get the company back on track over the next couple of years.

Crest’s pipline is looking good, its landbank is healthy, and again I don’t see any serious threat to the sustainability of the dividend.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019