On results day, 28 February, I thought we might see the Taylor Wimpey (LSE: TW.) share price gain a bit. The 2023 year was a tough one, for sure. But I hoped a good outlook might give the shares a boost.
I didn’t expect the 3.5% drop in early trading that we saw. The recovery seems to have gone off the boil. And we’re looking at a 25% fall in the past five years.
Profit slump
Profit before tax slumped to £474m, 43% down on 2022’s £828m. That’s a big fall, but it is in line with broker forecasts. So it really is no surprise.
Still, with some mortgage rates already starting to fall, maybe the market expected Taylor Wimpey to do a bit better than that. And I guess interest rates staying higher for longer won’t have put investors in a good mood to start with.
But, even with a 50% drop in adjusted earnings per share (EPS), the board still lifted the full-year dividend. It’s only a slight rise, of 1.9% to 9.58p per share. But it makes for a nice fat 6.8% dividend yield on the previous close.
I’d say a company that can still pay out that much, in one of its toughest years in recent memory, is one to consider buying.
Outlook
CEO Jennie Daly said: “Looking ahead we are well-positioned in an attractive market, with significant underlying demand for our quality homes and are poised for growth from 2025, assuming supportive market conditions.“
There are a couple of thing to unpack there, I think. It sounds like the firm isn’t expecting much in 2024, and we should expect to see another year similar to 2023. That’s in line with forecasts, which show a small fall in profits this year. Maybe the City was hoping for a better 2024 outlook.
Then we have the “assuming supportive market conditions” thing. And while that’s really a given, might it suggest Taylor Wimpey is less confident of the 2025 outlook than we’d hope? It seems like more uncertainty.
That does seem to highlight the biggest risk right now. It’s at least another year of depressed business, with only a fairly modest recovery on the cards for 2025. I think the shares could stay weak for a while yet.
Cash cow
Despite the fall in earnings, Taylor Wimpey’s dividend is still covered by adjusted EPS. Only just covered, 1.03 times, but that’s good enough for me right now. There are some big FTSE 100 dividends that just aren’t covered by earnings.
The report did say that “we have a high-quality, well-invested landbank and a strong financial position which underpins our ability to provide investors with a reliable income stream.”
The company ended the year with net cash on the balance sheet, of £678m. That’s only a 21.5% fall from 2022, which doesn’t look too bad at all to me. And it gives me confidence in the dividend.
I have Taylor Wimpey shares on my ISA plan for 2024.
