The stock market continues to leave me baffled. Shares in Taylor Wimpey, one of the UK’s three biggest housebuilders, yield 8.9 per cent, on next year’s 13.8p indicated dividend, even after rising 9¾p to 154½p on the interim figures. This year’s payment is less generous, 10.91p, but even then the yield is 7 per cent.
For any share, in normal times, where the yield had risen above 6 per cent, the market was saying that the dividend was to be cut and that the company was in trouble. Yet there seems no possible eventuality, other than a complete meltdown in the housing market, why that payment should not be made. Taylor Wimpey is piling up cash.
The company has made it clear that if the UK housing market turns down, there is the option of buying less land — in which case cash will continue to pile up — or slowing down on the near-300 sites it operates from in the UK. The company is right in the middle of that housing market, in price terms, and has little or no exposure to the high-end London sector, which might give rise to concern.
There is no sign yet of that UK market turning down. Taylor Wimpey says it saw a slight increase in customers backing out of purchases right after the referendum vote, which was to be expected, but that the rate of reservations has since picked up again and is running at the normal level for this time of year.
Completions are heading up and average selling prices are rising. Margins in the first half were flat at 19.2 per cent but this is a one-off from writedowns for technical reasons at two older sites. They should easily top 20 per cent for the year, helped by the normal second-half bias in completions.
At the date of the referendum, about 90 per cent of expected private completions for this year were presold. Taylor Wimpey has almost six years of completions at the current level available in its land bank.
Given all the above, it is hard to conceive how those dividend promises, confirmed again yesterday, will not be met. The company will decide next summer on whether it will make a special dividend payment in 2018 but, at present, this seems likely. That dividend yield makes for a compelling investment case.
My advice Buy
Why Dividend yield is among the highest in the market, while it is hard to imagine circumstances under which payments are not made
St James’s Place
Given the nature of the clients St James’s Place advises, generally well-off and seeking a long-term home for their money, it would be surprising if they had cut and run in the market mayhem after the Brexit vote, and, indeed, they didn’t. St James’s would not normally include an update for beyond the end of its first half in June but the fund manager has reassured the market that inflows of funds have continued as usual since.
The company’s assets under management are widely spread on global markets, with less than a quarter in UK equities. Net inflows stood at £3.1 billion in the first half, comfortably ahead of £2.7 billion last time.
St James’s is confident it can increase assets by 15 per cent to 20 per cent a year, which would see them double by the end of the decade. The key is the number of advisers it employs to help those clients, rising by about 10 per cent a year.
The shares, up 33½p at 917½p, are back to where they were before the referendum, having been dragged lower, for no good reason, along with other financials. The long-term story is there but, with the shares yielding only 3.2 per cent, there is no obvious reason to buy.
My advice Avoid
Why Shares have recovered and look fairly priced again
Primary Health Properties
In the past the only problem with Primary Health Properties has been that the company’s generous dividend payments, now made quarterly, have not been fully covered by earnings since 2009 because of the high level of debt. This is no longer the case because the payment for 2016 will be fully covered. Debt has been reduced by means of several share placings that were snapped up by City investors.
I suggested yesterday that Unite Group was a safe haven from the risks elsewhere in the property sector because of its assured income from student accommodation. The same is true of PHP, which gets its income from buying and renting out premises for GPs, health centres and pharmacies. About 90 per cent of that comes from the NHS and is therefore guaranteed, while the portfolio is almost entirely let with average lease lengths stretching out more than 14 years.
The only question is whether the appropriate sites can be identified to allow further growth. The portfolio is valued at £1.2 billion now; there is another £160 million of properties identified, including the first one in Ireland, and PHP seems confident that it can get to a portfolio value of £1.5 billion over the next couple of years. The loan-to-value ratio, at 53 per cent, is comfortable enough.
The shares, unchanged at 110¼p, have traded in a pretty narrow band over the past few months. The dividend yield is 4.6 per cent, which given its utter reliability is good enough, even if there is better but riskier income elsewhere in the sector. A real safe haven, then.
My advice Buy
Why Dividend yield is among the safest on the market
And finally . . .
The Competition and Markets Authority has waved through Breedon Aggregates’ planned £336 million purchase of Hope Construction Materials, announced last year, after the company agreed to sell 14 ready-mixed concrete plants to assuage the CMA’s concerns. Those disposals can now start and the acquisition should be done at the start of next month. It is a big one for Breedon, one of my tips for the year, creating what is claimed to be the UK’s biggest independent building materials group with a truly national reach.
