Is the Taylor Wimpey dividend safe?

At Taylor Wimpey (LSE: TW) dividend is amazing.

With the housebuilder’s share price close to 118p, shareholders get a dividend yield ahead of more than 8% for 2024.

But is the dividend safe? Or will the directors be cut off before they can collect the payment?

After all, it is well known in the investment community that high yields can sometimes be a sign of danger ahead.

Volatile financial notes

And the company’s dividend record isn’t pristine. For example, shareholder payments are reduced for the trading year 2019. And they are also predicted to decrease slightly this year.

However, all other years from 2017 onwards showed healthy dividend increases. And City analysts predict an increase of almost 10% for payments related to trading in 2024.

But revenue, earnings and operating cash flow all show volatility over multi-year periods. And it almost goes without saying that the stock price has been wobblier than a violinist’s elbow.

All these results arise due to the undoubted cycle in the housing sector. In fact, I often collect bank stocks and homebuilder stocks to give me a sense of how investors feel about the broader economic outlook.

Indeed, watching bank and homebuilder stocks can sometimes give you a clue as to which market to target. But it is not always true. And each sector also has its own unique drivers.

For example, home builders trade with a background of good long-term supply and demand characteristics. In other words, more people want houses than there are houses available. And that’s good for builders.

But in the shorter term, anything can happen. And events such as wars, economic recessions, excessive price inflation, pandemics and more can affect the building business. And it is possible for revenue, profit, cash flow, share price and dividends to plunge with little notice – that is the risk of cyclicality.

Dividends look set to continue

However, it is worth remembering that cyclicality works in both directions. And stocks such as Taylor Wimpey can rise quickly when the general economic sun comes out from behind the storm clouds. And in such a situation, all of us will not worry about whether the dividend is sustainable or not.

Meanwhile, last month, the company published the full figures for 2022. And the director said that the spring selling season started with increased sales compared to the previous fourth quarter.

However, the reservation rate is “important” lower than in recent years. And because concerns about affordability have reduced the activity of buyers. So, Taylor Wimpey has reduced the build program for 2023.

However, chief executive Jennie Daly explained that the business would support its dividend policy. And that is to pay 7.5% of net assets – or at least £250m – every year “Every cycle”.

Therefore, Taylor Wimpey’s dividend is likely to be sustainable as long as there is no dramatic deterioration in general economic conditions. And at the very least, I rate the company as time for further research for investors.