The latest figures from the National House Building Council show the biggest quarterly fall in the number of new houses since 2012.
New builds in the first three months of the year fell by 14%, with the 2017-18 construction count dipping by 2% and coming in around 100,000 homes down on the government’s annual target of 300,000.
Though the shortfall was put down partly to the tough winter we’ve had in parts of the country, it won’t help a sector whose popularity seems to be faltering a little.
Taylor Wimpey (LSE: TW) shareholders have shrugged off the tidings, with the share price pretty much unchanged at the time of writing, but the growth of recent years has gone off the boil.
Since a peak in May 2016, the Taylor Wimpey share price has lost almost 10% of its value, bringing to an end the bull run that has gone on for almost 10 years — since late 2008, Taylor Wimpey shares have almost trebled in value.
The decade of double-digit annual earnings growth inevitably had to slow at some point, and I reckon investors would be mad to abandon Taylor Wimpey now that it’s offering forecast dividend yields of 8% — but they would be covered only 1.4 times by earnings.
I see the dividend as sustainable at these levels myself, but should cover drop and should there be any sign of weakness in the firm’s ability to keep the payments coming, I could see a mini exodus and a share price fall.
What are the chances of that? Pretty low, I think, for a number of reasons.
The fears look overblown
With the company’s EPS growth rate expected to fall to the 4%-5% range, a lot of investors who had been pursuing that big growth phase will be moving their cash to wherever they think they see the next big thing. And though most dividend investors will surely be holding tight, that will take a little while to shake out.
Another factor is that Wimpey, along with the other UK housebuilders, is playing things a little cooler this time. They’re not all going flat out to build as many homes as they can in the shortest possible time, as was the damaging temptation during house price booms of the past.
Instead, they’re going at a sustainable pace, and managing their landbanks for the best possible long-term results. I reckon that’s exactly the right strategy — nobody wants boom-and-bust cycles, and it gladdens me to see companies with an eye to more than the current year’s figures.
Taylor Wimpey, on a forward P/E multiple of only around nine, still looks like very good value to me, and so do its partners in the sector.
Persimmon has long been a favourite of mine, though it’s currently valued a little higher on a P/E of 10, and EPS is predicted to grow a little more slowly at 3%-4% per year. Forecast dividend yields are a bit higher, though, at the 8.5% mark — but covered more thinly at around 1.2 times.
Barratt Developments is similarly valued to Taylor Wimpey, on forward P/E ratios of 8.2 to 8.7 as EPS growth is expected to slow to 5%-6% per year. Dividend yields of 7.7% and 8% for this year and next would be covered around 1.5 times, making the firm look attractive to me too.
I reckon all the FTSE 100 housebuilders are still very tempting investments.
