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LONDON (Alliance News) - Shares in Taylor Wimpey PLC were in demand Tuesday, making the house builder it one of the best performers on the FTSE 100, after it said the current "positive" state of the UK new-build housing market meant it was raising its medium-term financial targets and upgrading its dividend policy.
Shares in Taylor Wimpey were up 5.1% at 194.30 pence, the best performing London blue-chip on Tuesday.
The housebuilder said the healthy and controlled lending environment was providing good accessibility to mortgages at competitive rates, whilst consumer demand and confidence remain high. Taylor Wimpey noted that it was performing well in this environment, pointing to its strong order book in which it is over 70% sold for 2016 private completions as at the end of April 2016. The company said this positions it well for the remainder of the year.
Against this backdrop, Taylor Wimpey said it was raising its medium-term financial targets, which will apply for the period from 2016 to 2018, after having met or exceeded the goals it set out in May 2014. These targets are to generate an average annual return on net operating assets of 30%, an average operating profit margin of 22%, and the GBP1.30 billion in dividends, to be paid in cash to shareholders over the period.
Taylor Wimpey said it was making these changes following a "comprehensive review" into its strategy, in which it also concluded that it will enhance its dividend policy. Its policy will now comprise a dividend to be paid throughout all stages of the housing cycle and additional significant surplus cash returns to be made at appropriate times in the cycle.
In light of this, Taylor Wimpey said that, from 2017, it will pay an ordinary dividend of around 5.0% of its net assets and it will be at least GBP150.0 million per year. Taylor Wimpey said this is "intended to provide a minimum annual return to shareholders throughout the cycle, including through a 'normal downturn'."
The housebuilder also noted that it was operating within the optimal size range of its short-term landbank, of between 75,000 and 80,000 plots, and this, together with the increased profitability of the company, meant that it will continue to generate cash that is surplus to the business's requirements. As such, shareholders will continue to benefit from this by way of a special dividend.
In 2016, shareholders will receive a total dividend of around GBP357.0 million or around 11.0 pence per share, Taylor Wimpey said, comprising of an ordinary dividend of approximately GBP57.0 million and approximately GBP300.0 million in special dividends. Subject to shareholder approval, Taylor Wimpey said it is anticipated that shareholders will receive a total of GBP450.0 million or around 13.8 pence per share in 2017, an increase of 26% from 2016, also including a GBP300.0 million special dividend.
Going forward, the proposed special dividend will continue to be announced one year in advance at the half year result, Taylor Wimpey added.
"We do not believe that it is in our shareholders' interest to use significant debt in order to make cash returns, but we also do not believe that zero debt or a positive cash position is a necessary or efficient way to deliver value from the business. Our priority will continue to be to maintain our high-quality strong balance sheet," Taylor Wimpey said in a statement.
Taylor Wimpey also noted that it will be working to further operational improvement and pointed to a shift within the cycle, which will see new factors becoming increasingly important.
"We believe that the land market is structurally different in this cycle, with fewer players and higher barriers to entry with increased upfront capital costs and expertise required to progress sites through the planning system," Taylor Wimpey said, noting instead that other factors look to be key drivers of value during this cycle and into the next one.
"We have always been clear that our quality measures are as important to us as our financial objectives and are key to the way we run our business. We will maintain a firm focus on health and safety, which will always be our non-negotiable top priority. We will also maintain a firm focus on continued business improvement through our investment in our people, product, processes and systems, through research and development and embedding improvements to our customer service processes," Taylor Wimpey added in the statement
"We believe that these areas will become more important during this cycle, and will become an area of clear differentiation for Taylor Wimpey and contribute to our long-term success," the company said.
By Hannah Boland; hannahboland@alliancenews.com; @Hannaheboland
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