Housebuilder Taylor Wimpey (LSE: TW) has paid out 48.8p per share in dividends over the last four years. That’s around 25% of the group’s current market-cap.
Including a 10.4p per share payout that will be received in early July, investors who bought the shares four years ago will have received about half of their original investment back in cash. That’s an unusual situation which suggests investors are unsure how sustainable the firm’s profits will be.
Although I agree that a house price slump is inevitable at some point, the market appears to remain fairly stable at the moment. If this situation continues, Taylor Wimpey’s forecast dividend yield of 8% could attract buyers to the stock as the year continues. I believe the shares could end the year ahead of the FTSE 100.
Cash + earnings upgrades
Unlike some rivals, the firm still has positive earnings momentum. Earnings per share are expected to rise by about 5% this year, and by a similar amount in 2019.
Although these forecasts could yet be cut, the group reported net cash of £511m at the end of 2017. Management expects to finish this year with a similar cash balance, despite £500m of planned dividend payouts.
Poor weather hit its performance at the start of this year, but trading remains solid. At the end of April, the firm reported forward orders of £2,155m and average orders per outlet of 0.85 per week for the year to date. The equivalent figures last year were £2,210m and 0.93.
The stock’s forecast yield of 8% looks well supported to me, as long as costs remain under control. I’d remain a buyer of Taylor Wimpey at current levels, but for investors looking for outright growth, I do have an alternative suggestion.
An income-growth buy?
Shares of German commercial property group Sirius Real Estate (LSE: SRE) rose by around 3% in early trade this morning after the firm said pre-tax profit rose by 17% to €89.6m last year. This figure was boosted by some significant gains, thanks to the revaluation of some properties and the sale of a number of assets.
However, the underlying performance of its business parks portfolio also improved. Like-for-like annualised rental income rose by 6.2%, while occupancy levels rose from 79.8% to 82.5%. Total annualised rental income lifted 12% to €79.5m, thanks to a number of acquisitions.
These figures suggest to me that demand for Sirius’s flexible workspace developments remains strong. And today’s news confirms my view that the company could be positioned for another step forward in growth.
Recycle and repeat
According to today’s results, Sirius completed an “intensive period of asset acquisition and recycling” last year. What this means is that the group sold three mature assets for a total of €103m and purchased 13 new assets for €163.7m.
The new properties have average occupancy of just 58%, compared to 90% occupancy for the ones which were sold. Management hopes that by investing in these under-utilised properties, the firm will be able to generate increased rental income and capital gains from improved valuations.
The shares now trade at around 1.2 times book value and offer a 4% yield. Given the group’s track record of creating value for shareholders, I believe this stock remains a buy at current levels.
