Based on its current performance and increased confidence in its ability to deliver future growth, the amount paid in dividends will be cranked up to roughly 7.5% of group net assets, up from 5% at present.
Taylor Wimpey said this equates to around an extra £250mln a year, compared to at least £150mln a year in dividend payments under the current guidelines.
Shareholders are also in line for a special dividend in 2019, with the firm earmarking £350mln to finance a nice little bonus, which would take 2019 total dividend payments to around £600mln, up 20% year-on-year.
Based on its current five-year expectations, and in current market conditions, Taylor Wimpey expects special dividend payments to remain comparable to the 2018 and 2019 payments.
The firm is set to provide detail on the new goals it has set out for the next five years at a presentation today for investment analysts.
The goals are:
- An increase of return on net operating assets to 35%
- Maintaining operating profit margins at c.21-22%
- Operating cash conversion of between 70 and 100% of operating profit into operating cash flow
- Increased land-bank efficiency - reducing the length of short-term owned and controlled land-bank years by around one year to 4-4.5 years
"The changes we are announcing today to our operations will develop and be implemented over time, but are very significant - we aim to deliver increased growth, higher dividends and an increase in our return on capital by working our existing land assets harder and smarter,” said Pete Redfern, the chief executive officer of Taylor Wimpey.
“We have always said that running the business in the right way for the long-term was more important than short-term financial performance. We continue to believe this and the changes to the way we see our customers and the way we see the business long-term are much more fundamental: putting our customers' needs and desires at the heart of our business, which will ultimately make us a more valuable, sustainable business for all of our stakeholders," he added.
Russ Mould, the investment director at AJ Bell, said the company was the latest big name in the sector to outline plans for an ambitious capital return.
“With enhancements to the ordinary and special dividend, the £600mln total payment planned for the 2019 financial year implies a yield of around 9%. The pledge is underpinned by a target to maintain margins at current levels and to increase return on assets," Mould said, before cautioning the sector’s "extremely generous dividends aren’t going to last forever" and shareholders shouldn’t get accustomed to high levels of income, year in, year out.
“Bar some economic uncertainty around Brexit, conditions for housebuilders are very supportive in terms of government policy and low interest rates; however, Taylor Wimpey will need to prove to investors it can deliver the targeted level of performance even when the backcloth is not so helpful,” he added.
Liberum Capital Markets said the company's capital markets day – a teach-in for the investment community – heralded a change in strategy.
“The main change is that it aiming to build out its land-bank quicker, which should see volumes increasing faster than originally expected over the next few years. It will do this by broadening the product offer, in particular engaging in more PRS [private rented sector] development. This should increase the return on capital and allow a relatively shorter land-bank (keeping the land-bank where it is but sustaining higher unit production),” the broker said.
“The statement makes clear that it is aiming to step up volumes without increasing the scale of the land-bank, so changes are evolutionary and not revolutionary and management has admitted that even this degree of change will take some time to deliver, as the supply chain will need to be developed and internal efficiency improved,” the broker added.
Liberum thinks the consensus estimate for the 2019E dividend (ordinary and special) is likely to rise from 15.7p to 18.3p (up 17%).
The broker is of the opinion that the shares were fairly valued but could rise with the increased dividend and return on net assets.
Shares in Taylor Wimpey rose 2.3% to 199.5p in late morning trading.
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