Taylor Wimpey and Redrow switch to cash-saving mode

A sector once famed for returning oodles of cash has changed tactic. Analyst Keith Bowman explains.

In an ongoing flow of Covid-19 trading statements, housebuilders Taylor Wimpey (LSE:TW.) and Redrow (LSE:RDW) were among those publishing updates today. 

Following the government's latest lockdown measures, sales sites at Wimpey have been closed. Customer enquiries will be conducted digitally or over the phone. Construction sites will also begin to close. 

However, sales sites at Redrow remain open, although with increased cleaning and virus precautions in place. Customer site visits last week were substantially down with customer cancellations increasing. Both sales and building work are expected to be seriously impacted over coming weeks. 

Amidst the current uncertainty, Wimpey management now felt unable to offer any profit estimate for 2020. 

Both Wimpey and Redrow shares have more than halved since the virus pandemic first gripped investors on 20 February.

Moves to preserve cash in uncertain times were made by both. Taylor is now cancelling a final and special dividend payment to shareholders totally £485 million. Redrow is cancelling a half-year dividend worth £37 million. 

Rival Berkeley Group (LSE:BKG) recently postponed shareholder returns worth £455 million given current pandemic uncertainty. 

Retirement home builder McCarthy & Stone (LSE:MCS) also announced last week that it was cancelling its final dividend payment worth 3.5p per share. Crest Nicholson Holdings (LSE:CRST)has also drawn a line through its 21.8p per share final dividend. 

Pressure now appears to be on other big housebuilders such as Persimmon (LSE:PSN), Barratt Developments (LSE:BDEV) and Bellway (LSE:BWY) to act to preserve cash.  

Historic dividend yields in excess of 5%, but often as much as double that, have seen investors flocking to the sector for income. 

The corona crisis is now crimping that income. The question for investors, as with companies more generally, is just how long this health crisis will disrupt and cause companies to preserve cash for?

On the upside, recent measures taken by the Bank of England, cutting rates and implementing QE, mirror those taken by it after the financial crisis – measures which aided, although not fully drove, triple-digit share price gains for many of the players over the last 10 years.  

For now, the housebuilding sector's dividend machine has stalled.