Housebuilder Taylor Wimpey (TW.) is enjoying a healthy advance today, up 5.1% to 147.5p on an in-line pre-close trading update and after committing to £600m in dividends for 2019.
At the current share price this implies a dividend yield upwards of 12%. As a rule of thumb anything higher than 8% to 10% is usually a sign from the market that a dividend is vulnerable to being cut.
Total home completions for the year through December rose 3% to 14,947, while average selling prices on ‘private completions’ rose 2% to £301,000, and overall pricing was flat with build costs 3% to 4% higher.
The company’s net private reservation rate was 0.80 homes per outlet per week, up from 0.77 a year ago.
The company ended the year with an order book worth £1.78bn, up from the £1.63bn seen at the end of 2017, although it adds that it is too early to give much guidance on 2019 trading.
AJ Bell investment director Russ Mould says: ‘Either the market has got it wrong or there could be a nasty shock down the road for Taylor Wimpey shareholders.
‘Management are adamant in today’s trading update they will maintain a dividend payment in 2019 which implies a double-digit dividend yield. In normal circumstances, a yield of 10% or more is usually a reliable indicator that the market doesn’t believe the payout is sustainable.’
Shore Capital analyst Robin Hardy says: ‘Pricing remains the key concern and nothing in this statement allays our concern that weaker headline pricing, unrecovered cost inflation and the need for higher purchaser incentives are likely to erode margins in 2019 and most likely 2020.’
