Tuesday, 3 June 2014

Why I Nearly Bought Taylor Wimpey Today

Today I pretty much had by mouse hovering over the buy button for the house-builder Taylor Wimpey. I've been looking at the house builders a lot recently, especially Persimmon and TW. They seem well placed to take advantage of the improving economy as well as diversify my portfolio. So why did Taylor Wimpey specifically catch my eye?

Special Dividend?

There are a couple of reasons TW caught my eye. Most immediate was the special dividend of 1.54p per share which went ex-dividend today. In reality it was not a massively significant date to hit. At that value the dividend would represent a 1.4% yield. 

Excellent Forward P/E Predicitions

What has really put TW on my radar are the excellent forward P/E forecasts the company has attracted. The consensus earnings per share (EPS) figure for 2014 suggests a forward P/E of 10.6. Close enough to the bargain basement figure of 10 to be very interesting indeed. What is more, even with the range of predictions taken into account TW still looks appealing:

EPSP/E Ratio
Difference (%)23.77

Even the lowest EPS prediction thus shows a P/E of 11.7. Not bad at all. 

What is more, the 2015 predictions are even more encouraging. On the consensus EPS we have a P/E of 8. Very comfortably in the bargain territory. Again, even the spread of predictions is generously in TW favour:

EPSP/E Ratio
Difference (%)36.31

Even with the lowest EPS it is still a sub-10 P/E ratio.

Growing Dividend Yield

Yet more appealing are the dividend growth predictions. This year's dividend does not appear that spectacular. Indeed, with a prediction of 2.39p per share most of the dividend can be found in the special dividend gone ex-dividend today.

What is more striking, is 2015s predicted dividend: 7.26p per share. This would offer a 6.72% yield on today's 108p share price. Furthermore, according to the most conservative EPS prediction that should be covered by earnings by at least 1.6 times.

Why Did I Not Buy?

The chief reason I did not buy is the general uncertainty. The housing market is very volatile. As a result, it seems a distinct possibility that the house builders share prices will come under pressure again soon. Consequently, it may pay to hold back to see if a better opportunity arrives.

Are you buying housing stocks now or waiting for some certainty to emerge? Instead of house builders are you looking at the construction industry more generally (such as Carillion)?

[Creative Commons image reproduced from Flickr user Robert Wade (rossendalewadey)]

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