When housebuilder Persimmon plunged yesterday, Taylor Wimpey (LSE: TW) shares dropped almost 5% in sympathy.
The market didn’t like Persimmon’s profit warning. But what about Taylor Wimpey’s full-year results this morning?
To my reading, both the figures for 2022 and the outlook statement look better than Persimmon’s. And on top of that, Taylor Wimpey is displaying better value characteristics. For example, with the share price near 118p, the price-to-tangible book value is about 0.98. And that compares with Persimmon’s of around 1.25.
A modest slide in the dividend
But one of the features of Persimmon’s report was a big downward rebasing of shareholder dividends. However, Taylor Wimpey’s multi-year record of dividend progression has been smoother.
And looking ahead, the company said its dividend policy aims to pay out 7.5% of net assets annually throughout the cycle, or at least £250m. So if that happens, dividends may not fall too far. After all, the cost of dividends for 2022 was around £324m.
City analysts have pencilled in an estimate for total 2023 dividends of 8.75p per share. And that compares to total ordinary dividends for 2022 of 9.4p per shares. So the decline is just under 7% — not too bad.
Meanwhile, set against that estimate, the forward-looking dividend yield for 2023 is running just above 7%. And that looks like another indicator for decent value with Taylor Wimpey shares.
However, operational conditions can change fast for any business. And that’s especially true in a cyclical sector such as housebuilding. Nevertheless, the share price is flat today and didn’t extend its decline on the release of today’s report. But for context, the stock is down by around 18% over the past year.
Better sales so far in 2023
The figures for 2022 show revenue, earnings and cash balances all well up. But housebuilders experienced softening demand in the fourth quarter of the year. However, the directors said current trading in 2023 shows signs of improvement. And better sales follow recent reductions in mortgage rates.
But there are also “early signs of stabilised customer confidence”. And the “usual” seasonal trading patterns are working to the company’s benefit. Meanwhile, selling prices have been holding up quite well.
Nevertheless, the cancellation rate is running near 17%, up from 14% a year ago. And the reservation rate is “significantly” lower than in recent years because of customers’ affordability concerns. Therefore, the company has adjusted its build programmes for lower demand in the year ahead.
On 26 February, the order book stood at around £2,154m. And that’s down from £2,899m a year earlier. But directors reckon the business is “agile and ready to respond quickly to changing market conditions”.
The company has a strong balance sheet and that should help it get through the current weaker patch of trading. But the big question is, will conditions in the sector deteriorate further? And the answer to that question is hard to guess. Yet there is some evidence from both Taylor Wimpey and Persimmon that conditions have been settling down so far this year.
So is it a good idea to buy Taylor Wimpey shares now to hold long term? Investors must form their own conclusions based on research.
