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Housebuilder Taylor Wimpey (LSE: TW) introduced this month that it’s boosting its annual dividend by 9.6%. That lifts it to 9.4p per share, which on the present share value equates to an 8.3% yield. That definitely attracts my consideration – however is the Taylor Wimpey dividend forecast as interesting?
Housebuilders typically have fairly risky dividends.
When the housing market does properly, they’ll generate loads of free money move. Some may be used to purchase land, however past that there are sometimes restricted makes use of for the money contained in the enterprise, so it’s paid out as dividends. When home costs crash or gross sales volumes fall (typically these two issues go collectively), dividends may be reduce sharply or cancelled altogether.
Before the pandemic, for instance, the annual Taylor Wimpey dividend was 16.9p per share. But in 2020 it slashed its payout and raised funds by issuing new shares, diluting current shareholders.
It was an identical story throughout the monetary disaster in 2008. The share value had tumbled over 85% in a 12 months and the corporate tried however failed to lift half a billion kilos in a rights concern. The annual dividend of 15.8p was scrapped. In different phrases, even after this month’s beneficiant improve, the dividend is round 40% decrease than it was again in 2007.
Taylor Wimpey dividend forecast
But whereas it could have reduce its dividend severely earlier than, that doesn’t essentially point out what the following few years maintain for the corporate’s shareholders.
Basic earnings per share of 18.1p final 12 months imply that the dividend was amply lined. Even if earnings are flat somewhat than rising, the Taylor Wimpey dividend might continue to grow considerably for years to come back.
The firm generated optimistic free money move of £29m, after paying out £324m in dividends and spending £151m shopping for again shares. That is sustainable if earnings keep at their present degree. Even in the event that they fall, it could be attainable for the dividend to be maintained or elevated, by stopping share buybacks.
What in regards to the Taylor Wimpey dividend forecast? The firm’s said goal is to “provide an attractive and reliable income stream to our shareholders, throughout the cycle including during a normal downturn, via an ordinary cash dividend”. It tries to pay out 7.5% of internet property or at the very least £250m yearly all through the financial cycle. It reckons it will probably do that if home costs fall lower than 20% and gross sales volumes decline by beneath 30%.
In apply, I’ve my doubts about whether or not the agency would pay the identical dividend if issues bought that dangerous, or search to protect money as an alternative. For now, though the corporate says that, “the weaker financial backdrop continues to impression the near-term outlook“, it stays upbeat about gross sales prospects. If the housing market doesn’t get dramatically worse, I count on the Taylor Wimpey dividend this 12 months to be on the identical degree or greater than final 12 months.
That will depend on the well being of the housing market, although. Longer time period that’s tough to evaluate. A extreme drop in promoting costs might imply a dividend reduce. For now, I’ve no plans to buy the shares.