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Taylor Wimpey announces new dividend policy

Charlie Huggins | 17 May 2016 | A A A
Taylor Wimpey announces new dividend policy

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Taylor Wimpey plc Ordinary 1p Shares

Sell: 162.75 | Buy: 162.85 | Change 1.20 (0.74%)
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Taylor Wimpey has announced enhancements to its dividend policy and revised three year financial targets. The group is targeting an annual ordinary dividend of approximately 5% of net assets - subject to a minimum of £150m per annum - to be paid through the cycle from 2017.

Taylor Wimpey will also seek to return surplus cash to shareholders by way of a special dividend in July each year; while maintaining a strong balance sheet and replacing land on a selective basis. Given the margins and cash flows the business is currently generating, the group expects to generate significant free cash flow that can be returned to shareholders.

The new dividend policy will start in January 2017. In 2016, shareholders will receive a total dividend (including ordinary and special dividends) of c. £357 million (c. 11.0 pence per share). In 2017, the group is targeting an ordinary dividend of £150m and special dividend of £300m to give a total of £450m, or c.13.8 pence per share; an increase of 26% from 2016. Going forward, the proposed special dividend will continue to be announced one year in advance at the half year results.

Taylor Wimpey has also increased its medium term financial targets, reflecting its confidence in the business and the current strength of the housing market. For the period from 2016 to 2018 it is targeting:

  • An average annual return on net operating assets of 30% (2015: 27.1%)
  • An average operating profit margin of c.22% (2015: 20.3%)
  • A total of £1.3 billion of dividends to be paid in cash to shareholders

Our view:

Share prices have fallen sharply across the sector in the wake of the UK's vote to leave the European Union, and Taylor Wimpey have proved no exception. Builders' profits and cash flows are highly geared to house prices, so a fall in the housing market resulting from a vote to leave would not be good news for the sector.

The result has thrown some doubts over the UK's economy, which now looks set to be facing a prolonged period of uncertainty. Consumer sentiment could take a hit, particularly if unemployment rises, making people more likely to sit on their hands rather than commit to house purchases. This leaves the housing market potentially vulnerable to a correction.

Some things won't change as a result of this vote. Brits still want to own homes, whether in or out of the EU, and government schemes such as help-to-buy will almost certainly be unaffected. The UK still faces a major housing shortage, which should support demand for housing in the long run. Meanwhile, interest rates look likely to stay lower for longer; barring a full blown sterling crisis, given the weaker outlook for the UK economy. This should continue to support mortgage affordability.

In addition, Taylor Wimpey have displayed good capital discipline and have a much stronger balance sheet than before the 2008 crisis. However, if prices start falling and conditions do materially worsen, the group's capital returns plans could come under question. At present, despite its recent de-rating, the group trades on a price to book ratio of 1.24, still above its historic average.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.