FTSE 100 housebuilders are popular with income investors right now. This is due to the fact that in recent years, these stocks have paid out some huge dividends.
Are the housebuilders set to continue paying out big dividends in the years ahead? Let’s take a look at current dividend forecasts for three of the biggest UK housebuilders – Persimmon (LSE: PSN), Taylor Wimpey (LSE:TW), and Barratt Developments (LSE: BDEV).
Persimmon
Starting with Persimmon (which paid out 235p per share in dividends last year), it’s currently expected to pay out 235p per share for 2022 and then 225p for 2023. At today’s share price, these projected payouts equate to yields of 13% and 12.5%.
One thing that’s worth pointing out here however, is that analysts are currently revising downward their dividend forecasts for Persimmon. In the last month, for example, the consensus forecast for the 2022 dividend has fallen by 4.1p.
Additionally, dividend coverage (a measure of dividend sustainability that’s calculated by dividing earnings by dividends) is very low, as the company is only expected to generate earnings of 250p per share this year and 229p per share next year. This indicates the big dividend here might not actually be sustainable.
Taylor Wimpey
Moving on to Taylor Wimpey (which paid out 8.58p per share last year), it’s currently expected to pay out 9.61p per share for 2022 and 11.2p per share for 2023. At the current share price, these estimated payouts equate to yields of 8.1% and 9.4%.
Encouragingly, dividend coverage is quite solid here. Currently, analysts expect the company to generate earnings of 19.3p and 19.2p per share for this year and next. This gives dividend coverage ratios of two and 1.7.
Barratt Developments
Finally, Barratt Developments, whose financial year ends on 30 June, is expected to pay out 38.2p per share for the year just passed, up from 29.4p a year earlier. Meanwhile, for the year ending 30 June 2023, it’s expected to pay out 41.5p per share. These equate to yields of 8.2% and 9% currently.
And like Taylor Wimpey, dividend coverage is quite solid. Currently, it’s 2.2 for the financial year just passed, and 1.9 for this financial year.
A warning about dividend forecasts
It’s worth stressing that all the figures above are just estimates. And estimates are not always accurate. So there’s no guarantee that these housebuilders will pay these kinds of big dividends.
Would I buy these dividend stocks today?
And that brings me to my next point. One thing to understand about housebuilders is that the industry is extremely cyclical. In other words, profits rise and fall, often quite dramatically. As a result, these companies are not reliable dividend payers. During the boom times, dividends can be very high. Yet during economic busts, they can dry up completely.
For example, during the early days of Covid-19, all three of the companies above suspended their dividends. They all cut them during the Global Financial Crisis too.
Given the boom/bust nature of housebuilders, I don’t see them as a good fit for my portfolio. When it comes to dividend stocks, I go for those that can potentially pay me a regular and growing income stream for life. Unfortunately, these stocks just don’t fit the bill.
