ii view: Taylor Wimpey builds on strong market fundamentals

An expanding forward order book and an estimated future dividend yield of over 4%. We assess prospects. 

Trading update from 1 January to 22 April

• Forward order book up 5% to £2.8 billion
• Expects to pay an interim dividend of 4.14p per share in November
• Full-year guidance unchanged

Chief executive Pete Redfern said:

"The UK housing market continues to be resilient and we are trading in line with our full year expectations. With strong market fundamentals, customer demand for our high-quality homes remains robust and we are achieving a strong sales rate and building a healthy forward order book.

"We are a cash generative business with a strong balance sheet and remain focused on our strategic priorities to drive operating profit margin while creating long term value for our customers and shareholders."

ii round-up:

Taylor Wimpey (LSE:TW.) was formed from the merger of George Wimpey and Taylor Woodrow in 2007. 

Along with its core UK operations, it also has a small Spanish housebuilding business.   

For a round-up of this latest trading update, please click here. 

ii view:

Taylor Wimpey is currently the third biggest UK listed housebuilder with a value of over £6.5 billion, behind Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV). 

For investors, uncertainty relating to both the pandemic and a follow through impact from Brexit cannot be completely overlooked. Full-year 2021 volumes are expected to run at 85% to 90% of those seen in 2019. Recent concerns for Central Bank action and growing inflation could also potentially see interest rates rise. And the many government housing market supports could at some point be scaled back.

That said, demand for new build houses clearly remains robust. Wimpey’s June move to tap shareholders and fund land buying looks highly sensible. Cash generation has allowed the return to dividends, with special dividends potentially back on the cards as early as 2022. Including the expected 4.14p per share interim payment come November, an estimated forward dividend yield of over 4% is attractive in the current ultra-low interest rate era. For now, and with government support for the sector still very much alive, investor backing for this housebuilder looks deserved longer term.

Positives: 

• Forward order book up 5% to £2.8 billion
• Attractive estimated forward dividend yield (not guaranteed)

Negatives:

• Government ‘help to buy’ scheme previously watered down
• Recent concerns for rising interest rates

The average rating of stock market analysts:

Strong buy