Housebuilder Taylor Wimpey (LSE: TW) was one of the first purchases I made for my Stocks and Shares ISA. I was attracted by its solid growth outlook, its mighty cash flows and, therefore, its big dividends as well. While the Brexit saga might have taken some of the wind out of its sails, I consider the FTSE 100 stock is still be a brilliant buy for dividend chasers today.
Newbuild sales might still be robust as Taylor Wimpey’s most recent trading details showed. Net private sales sat at record levels in the first half of 2019, whils its order book was up 10% in terms of units as of June, and 9% in terms of value.
But the slowdown in the broader market has put paid to the awesome property price increases of yesteryear, and particularly so in London and the South East. Consequently, that hit the double-digit-percentage rises in annual profits for these construction specialists.
What’s more, uncertainty over what Brexit will mean for the economy in the near-term and beyond means it’s impossible to predict when home prices will start to accelerate again. Latest data from Nationwide today showed the average property value rose just 0.4% in October, the 11th straight month in which growth has been below 1%.
Short-term pain, long-term gain
In this environment, City analysts expect Taylor Wimpey earnings to stage a rare fall in 2019. A 5% drop is currently predicted, a forecast that reflects insipid property price growth combined with a recent acceleration in build costs (the Footsie firm expects build inflation to reach 5% this year versus 3.5% in 2018).
However, number crunchers also predict this will be a mere blip in the company’s growth story. It’s expected to stage a mild recovery with a 2% bottom-line rise in 2020, owing mainly to Taylor Wimpey’s attempts to turbocharge construction rates. Indeed, these steps to increase output should set it on course for powerful profits growth again once the market eventually recovers.
Recent evidence certainly indicates demand for Taylor Wimpey’s product over the long term should remain robust. According to Office for National Statistics data, there were 38,020 new home starts between April and June, down 10.5% year-on-year, and the lowest rate of build since 2013.
There simply aren’t enough homes to meet demand — government estimates the UK will need to put up 300,000 homesteads per year — and those latest figures show just how badly policymakers are failing.
11% dividend yields!
No wonder, then, that analysts expect Taylor Wimpey will have the confidence to keep paying out market-beating dividends. Back in August, the company reiterated its intention to keep shelling out special payouts through to 2020 and, as a consequence, yields for the business sit at 11% and 11.1% for this year and next.
Bulging yields which batter the corresponding 4.8% blue-chip average aren’t the only reason why the builder’s such a brilliant buy either. At current prices, it also trades on a forward P/E ratio of around 8 times, well below the bargain benchmark of 10 times too.
If you’re seeking to build big income flows on a tight budget, I consider Taylor Wimpey to be one of the best.