Taylor Wimpey unveils bumper new dividend policy

Taylor Wimpey unveiled an improved new dividend policy that includes an upgraded ordinary dividend and a special dividend of £300m to be paid in July 2017.

Ahead of an event for analysts and institutional investors, the FTSE 100 housebuilder announced its enhanced dividend policy where the ordinary dividend will be "significantly upgraded" to approximately 5% of net assets, meaning a minimum of £150m will be paid per year in payments in May and October, through the cycle from 2017.

The new special dividend comes on top of the £300m previously confirmed for July 2016.

"We are confident that the quality of our short term landbank, with the underpin of our significant strategic land pipeline, will mean that we can continue to be cash generative through the cycle, enabling us to sustain a significant ordinary dividend to shareholders on an annual basis," the company said in a statement.

It explained that as its short-term landbank of between 75-80k plots was within the ideal range, it only needs to make "selective" land replacements, which combined with the increased profitability of the business, means surplus cash will be generated.

In 2016, shareholders will receive a total dividend, including ordinary and special dividends, of approximately £357m or circa 11.0p per share.

Directors also increased their three-year medium term financial targets for 2016 to 2018 to also cover return on net operating assets, profitability and total dividends to shareholders.

Namely, Taylor Wimpey will target an average annual return on net operating assets of 30%, an average operating profit margin of circa 22% and a total of £1.3bn of dividends to be paid in cash to shareholders over the period - which implies another special dividend for July 2018.

Analysts at Canaccord Genuity said consensus forecasts are unlikely to move significantly at this point, although the low end may move up.

"But the news on dividends should be well received and consensus dividend expectations will likely rise. Over the next 14 months the shares offer dividends per share of circa 22.5p - which implies a circa 12% yield."

Laith Khalaf at Hargreaves Lansdown noted that share price performance of the housebuilding sector has been quite weak this year despite positive results from the sector.

"The exact reasons for this are unclear, but Brexit uncertainty, high valuations, and distortions in the buy to let market caused by the rise in stamp duty could all be playing their part.

"Most good things come to an end however, and that is true in spades for a cyclical sector like housebuilders. Taylor Wimpey is clearly confident in its prospects given its very positive upgrade to financial targets and its dividend. The company’s ambition and focus on returning cash will play well with shareholders, but the risk is the economic tailwinds that have been blowing the housebuilding sector along start to shift their course."