£2,000 to invest? The Taylor Wimpey share price and this FTSE 250 dividend growth stock look tempting

Harvey Jones finds it hard to ignore the 9% income on offer at Taylor Wimpey plc (LON: TW) and has his eyes on another FTSE 250 (INDEXFTSE: MCX) building sector prospect.

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Building merchant Grafton Group Units (LSE: GFTU) is up almost 5% this morning after interim profits beat expectations in what management labeled an “excellent” first half of the year.


I’m pleased with Grafton’s progress because I flagged up the company last year, calling it a spectacular momentum stock with exciting growth prospects. I also warned that Brexit might prove a drag given that more than two-thirds of group revenues hail from the UK, and I’m happy I did as the stock still idles at last year’s levels despite today’s excitement.

Grafton’s half-year report to 30 June shows revenues up 9% to £1.45bn, with adjusted profits before tax up 19% to £90m and earnings per share (EPS) rising by the same percentage to 30.8p. CEO Gavin Slark hailed double-digit profits growth across all segments of the firm and the positive impact of “self-help” measures and development activity. Operations in the Netherlands and Ireland performed well, although demand dipped in Belgium.

Income prospect

Slark did admit that underlying activity in the UK was “relatively flat,” although it was boosted by excellent profit growth at British mortar business CPI EuroMix and a good contribution from new purchase Leyland SDM. 

This £1.9bn FTSE 250 company is on course to meet full-year expectations despite describing the UK outlook as “subdued” and warning of competitive pressure on pricing. We still may have to wait until the Brexit shackles are lifted to see real growth.

Grafton has posted double-digit EPS growth for the last five years but the trend is slowing with City analysts still pencilling in 8% this year and next. Grafton hiked its interim payout by 14% to 6p and although it currently yields 2.2% further progression looks assured, with healthy cover of 3.5. It looks reasonably priced at 13.7 times forward earnings, but maybe wait until Brexit is sorted.

Diary of a Wimpey kid

It’s been a tougher year for FTSE 100-listed Taylor Wimpey (LSE: TW), its share price down around 13% as confidence seeps out of the house building sector. It didn’t help that last month it posted a 1.8% drop in first-half adjusted operating profit to £344m, as poor weather dented building activity and sales.

Despite concerns of a housing market slowdown, its average selling price rose 1.6% to £257,000, although sales fell 2.3% to 6,497 units in total. Management increased its interim payout 6% to 2.44p, while also confirming a special dividend of 10.4p, with a further 10.7p to be paid in July 2019.

Taylor made income

The number that catches the eye is the yield, currently a forecast 9% with cover of 1.4. Its lowly valuation of just 8.1 times earnings also captivates, even if this combination highlights concerns about future growth prospects. It’s another stock to post five consecutive years of double-digit EPS growth with a projection to decline to 4% both in 2018 and 2019. On the plus side, by then the forecast yield is a blistering 10.3%.

You will not be surprised to hear that some are sceptical about prospects for Taylor Wimpey, as interest rates creep up, Brexit bores, and incomes stagnate. While that’s undeniably a concern, its share price and dividend yield still look right to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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