Despite recent weakness in the property market, housebuilder Bellway (LSE: BWY) is still a dividend stock.
In the preliminary full-year results report of 17 October 2023, the company held the total dividend at 140p per share.
And that means the yield is running at 6.4%, with the share price near 2,186p.
Dire figures
But the underlying figures in the report are dire. Everything that we’d want to be up is in fact down. And City analysts expect a further big decline in normalised earnings in the current trading year to July 2024.
However, chief executive Jason Honeyman said Bellway delivered a “resilient” performance against a backdrop of rising mortgage interest rates and challenging market conditions.
And looking ahead, Honeyman thinks the company’s land bank and “robust” balance sheet will provide ongoing strategic flexibility for the year ahead.
Indeed, Bellway has moved into the current downturn in the sector with net cash in the accounts rather than net debt. So, the business looks like it had previously been fixing the roof while the sun shone.
Despite near-term market challenges, Bellway is well-placed to capitalise on future growth opportunities, Honeyman said.
But those challenges are real and present now. Since the start of the new trading year, customer demand has been affected by mortgage affordability constraints. And the company said reservations are below the comparative rates of the prior year.
Because of a reduced order book and lower reservation rates, there will be a “material reduction” in volume output in the current financial year.
Uncertain outcomes ahead
And looking ahead, the directors see a wider than usual range of possible outcomes for the business. The final volume output for the coming year will depend on the trajectory of mortgage interest rates. And the strength of demand in the autumn and spring selling seasons will also be a big factor.
So, even the directors have little visibility of the likely performance of this cyclical business. But they did say that headline pricing has remained firm despite the use of targeted incentives being used to attract customer reservations.
Meanwhile, the share price is well down from its pre-pandemic high above 4,000p. But is it on the floor yet?
While considering the stock for its dividend potential, I think it is important to assess its cyclical positioning.
There’s no point in buying the shares of a cyclical enterprise like this unless there’s a strong possibility the stock is near a cyclical bottom. And that’s difficult to assess.
The traditional valuation indicators and any fundamental analysis of the business can be misleading. So, the best way of attempting to gauge the strength of the opportunity may be by starting with the price chart.
And if an investor can time a purchase of the shares well, there’s potential for a gain in the stock when the cycle turns back up.
There’s a lot of uncertainty and risk here. But if the business can sustain the dividend through the ongoing period of market weakness, the shares may be worth consideration now.
