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Taylor Wimpey update reassures but with a bumper dividend yield forecast, some questions remain

Russ Mould, investment director at AJ Bell said: “In normal circumstances, a yield of 10% or more is usually a reliable indicator that the market doesn’t believe the payout is sustainable”
Dividend file
He added: “Either the market has got it wrong or there could be a nasty shock down the road for Taylor Wimpey shareholders”

The under-pressure housebuilding sector got a shot in the arm on Wednesday after blue chip player Taylor Wimpey PLC (LON:TW.) kicked off the latest update season with a reassuring statement and said it remains committed to returning £600mln to shareholders via dividends in 2019.

The FTSE 100-listed firm said it will report full-year results in line with expectations and reiterated its previous guidance for 2019 volumes to be similar to 2018, given current market conditions, with significant volume growth potential seen for 2020 onwards.

READ: Taylor Wimpey sees 2019 volumes similar to 2018 levels given current market conditions

But the main focus was on Taylor Wimpey’s reiteration of its dividend payment plans – equivalent to 18.3p per share for shareholders in the current year.

Analysts at Peel Hunt pointed out that while they currently expect Taylor Wimpey to deliver no profit growth over full years 2019-2020, they think the builders' balance sheet is in good shape and it sees support from the implied dividend yield of 13.9% against a sector average of 9.2%.

Peel Hunt maintained a ‘hold’ rating on Taylor Wimpey’s shares.

However, Russ Mould, investment director at AJ Bell cautioned: “In normal circumstances, a yield of 10% or more is usually a reliable indicator that the market doesn’t believe the payout is sustainable.”

He said: “Either the market has got it wrong or there could be a nasty shock down the road for Taylor Wimpey shareholders.”

Net total shareholder return at zero

Analysts at Shore Capital also think the dividend remains a big issue for Taylor Wimpey.

They pointed out: “The board remains adamant that it will make this payment but the question still remains as to whether the shares give up a capital amount equal to the dividend leaving a net zero TSR (total shareholder return).”

The ShoreCap analysts said that although this has been their view, they feel that part of Taylor Wimpey’s share price de-rating over the past year has been a pricing-in of that phenomenon, which could mean that investors may get to see some net gain from the dividend.

They retained a ‘buy’ rating on Taylor Wimpey shares which has lagged a sector rally at the start of the new year.

Back in December, the ShoreCap analysts moved from a neutral to cautiously positive sector stance, but are wary of any rebound in the sector running too far.

They said: “The sector had become oversold but there are no grounds for the share prices to return to anywhere near the levels of last summer, in our view.

“Broadly, we believe that most stocks remain around 10-15% below fair value and if we rise materially above this we will look to switch back our call on the sector.”

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