The housebuilder Taylor Wimpey (LSE: TW), like many of its competitors such as Barratt Developments and Persimmon, is looking cheap. The price-to-earnings ratio is around eight. A number of factors are coming together to create a perfect storm, hitting the whole sector. The end of Help to Buy, Brexit, and fears of an economic slowdown are among the most prominent reasons that investor sentiment is clouding.
The dividend and performance
The dividend yield, of around 10% when you factor in special dividends, is very high for a FTSE 100 company. The average yield for the FTSE 100 is 4.36%. The group has also confirmed its intention to return around £610m to shareholders in 2020, which is an increase of £10 million from 2019. Further good news for investors is that analysts expect a dividend yield of 10.7% for 2019 and 10.8% for 2020.
The share price so far this year is up 30%. There’s plenty of room though for further growth with average number of sales per outlet per week rising to 0.92 in the second half of the year, compared with 0.77 in 2018.
Then there’s the order book and amount of land the housebuilder has. The total order book, excluding joint ventures, represents 10,433 homes, worth approximately £2.7bn and 12.5% ahead of last year. The short-term land bank stands at around 76,500 plots, and the strategic land pipeline holds around 133,000 plots.
The housebuilder looks in strong shape whatever happens in the economy with £300m on its balance sheet, so I’d say it looks great value.
Paying for quality
The consumer credit and data company Experian (LSE: EXPN) is a completely different kettle of fish with a P/E of 34. Investors are prepared to pay a premium – as shown by the high P/E – for the company as it’s less cyclical than for example housebuilders, and should, therefore, perform well if the economy does worsen. Or at least the share price should fall less.
In its most recent results, the FTSE 100 company revealed underlying operating profits rose 6% to £670m. The performance was driven by strong growth in its US consumer and Latin America lines of business.
Experian is successfully finding new markets for its data which is boosting profits and helping it thrive despite the emergence in recent years of free credit checks – something which it now does itself.
Successful innovation
‘Experian Boost’, recently launched in the US, has been a success. This service sees consumers supply non-standard data like mobile phone and utility contracts in order to boost their credit ratings. This has resulted in CreditMatch sales improving substantially and also provides Experian with a unique and entirely new set of data for its growing business-to-business division.
Experian is tapping into the growing need for big data across all industries and the quality of its earnings are reflected in the expensiveness of the shares but I think they will do well in the long term.