ii view: high hopes for Redrow dividend

Profits are down, but recent reservations are up and the order book is strong. 

Full-year results to 28 June  

• Revenue down 37% to £1.34 billion
• Pre-tax profit down 66% to £140 million
• Net debt of £126 million, from net cash of £124 million
• No dividend payment

Executive chairman John Tutte said:

"The Covid-19 pandemic had a profound impact upon the group's performance in the 2020 financial year but we entered the new financial year in a position of strength. We have a record order book and brought forward very high levels of work in progress. This was due in part, to increased investment earlier in the year in anticipation of strong demand for the Help to Buy scheme ahead of changes to the scheme next year."

ii round-up:

Housebuilder Redrow (LSE:RDW) today reported a 66% slump in annual profits, hit by the coronavirus and a more than one-third drop in completions to just over 4,000 homes.

But a record order book of £1.42 billion, and a 12% increase in home reservations during the new financial year, helped generate management confidence in a hoped-for return of dividend payments come 2021.  Last year, Redrow, which was founded in 1974 as a small civil engineering concern in North Wales, paid a total dividend of 30.5p per share. 

Redrow shares were marginally higher in early UK trading having fallen by 40% year-to-date. Shares for the biggest UK housebuilder by market value Persimmon (LSE:PSN) are down just over 5% in 2020, while both Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW) have fallen by more than a third. 

Since Redrow sales centres re-opened in May, it had seen strong demand, especially from buyers wanting to use the government’s help-to-buy scheme ahead of next year's changes and those wishing to benefit from the current stamp duty tax holiday.

As from April 2021, the help-to-buy scheme will be restricted to first-time buyers and there will be regional caps on the value of homes that can be supported. The scheme is due to end completely in early 2023. 

In June, Redrow announced a scaling back of its investments in London to concentrate investment on the regions. These areas are better suited it believes to its family home heritage product which generate higher returns.  

ii view:

Ultra-low interest rates and the government’s help-to-buy-scheme introduced in the aftermath of the 2008 financial crash have proved a boon for housebuilders. Add in the red tape of council planning and a shortage of housing and the result has been rising house and land prices. Both have helped housebuilders to make significant shareholder returns in recent years. 

At the turn of the year, housebuilder dividend yields at or close to double digits were not uncommon. This came on top of triple-digit share price gains over the last 10 years. Redrow shares are up over 225% since 2010. 

For investors, the current suspension of the dividend payment removes a core attraction. An uncertain Covid outlook can also not be forgotten, while changes to government support schemes and related taxes are also important in influencing buyer decisions. But with a record order book and a recent spike in buyer reservations, evidence of demand for new houses appears to remain firm. 

Positives: 

• Record order book of £1.42 billion
• Hoping to restart the dividend in 2021

Negatives:

• A downgrading of the help-to-buy scheme in 2021
• A second virus spike/lockdown

The average rating of stock market analysts:

Buy