Bovis Homes Group plc’s Dividend Rockets On Profit Gains

Shares of Bovis Homes (LSE: BVS) increased by 4% in early trade, after the housebuilder reported a 150% rise in operating profit for the six months to 30 June, driven by increased sales volumes, higher average house prices and stronger profit margins.

BovisBovis expects to deliver a “significant” increase in profits in 2014, with a return on capital employed of around 16%. The average sale price for completed homes is expected to be between £210,000 to £215,000 and, assuming a stable housing market, Bovis expects to deliver between 5,000 and 6,000 new homes annually.

The group is focused primarily in the south of England — although not London — and the business strategy is on building and selling high quality family homes. The concern for investors is that the froth is starting to come off the housing market. Property website Rightmove reported that asking prices in the beginning of August fell by £8,000, although Bovis is expects that “housing market conditions will remain favourable in the medium term given current sales prices, affordability and mortgage availability”.

The chief executive, David Ritchie, comented:

“Given its confidence in this strategic plan and considering the Group’s ongoing capital requirements, the Board intends to pay an enhanced dividend for 2014 of 35 pence per share, of which 12 pence has been declared as an interim dividend, a 200% increase on the 2013 interim dividend.  The Board also intends to pay a dividend of at least 35 pence per share in 2015.”

After this morning’s share price movement Bovis Homes shares offer a prospective yield of 4%, which compares to a 3.5% yield from the FTSE 100.

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Mark Stones has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.