Surge in Demand Lead UK Housebuilders to Consider Resuming Dividend

Summary

• During the pandemic, many companies including the A-listers had slashed or cancelled their dividend pay-outs
• As the situation is getting normal and businesses getting back on track, many companies have started announcing dividend
• Redrow & Galliford are likely to resume dividend pay-outs in FY 2021

Dividend seeking investors were left heartbroken after witnessing an unprecedented loss of wealth erosion due to the onslaught of the coronavirus pandemic. Many A-listers such as BT Group Plc (LON: BT.A) and Barclays Plc (LON: BARC), had slashed or cancelled their dividend pay-outs during the peak of the unprecedented crisis. Several other businesses followed suit in order to ensure liquidity and cost optimisation.

As situation started normalising and businesses getting back on track, the companies have started coming up with announcements of dividend pay-outs in recent times. Leading arms maker, BAE Systems (LON: BA.), paper-based packaging goods company, Smurfit Kappa Group Plc (LON:SKG) along with mining company, Rio Tinto (LON: RIO) have recently declared interim dividends for the first half of 2020.

UK Housebuilders is likely to recommence dividend pay-outs as the sector demand in the sector seems to have picked up steam post easing of lockdown. Let us put our lens through some of the Housebuilder stocks, which are likely to declare a dividend in the fiscal year 2021.

Also read: What Is Moving the Stocks of UK Housebuilders Higher Amid all the Uncertainties?

Redrow Plc

Redrow Plc (LON: RDW) is the United Kingdom domiciled real estate development company. The company has operations across England and Wales. From traditional family housing spaces to premium apartment complex schemes, the Group undertakes all kinds of housing projects.

The Group seems to have carried the same momentum into 2021. In the first few weeks of the new financial year 2021, the Group has reduced its investment in London and completed substantially more homes in contrast to the same comparable period last year. The company believes it can resume dividend pay-outs in 2021 due to strong operating cash flow expected over the coming months.

Financial Highlights FY20

(Source: Company’s filings, LSE)

The Company had shown a decline in financial performance in the financial year 2020. Both the top-line and the bottom-line performance were under pressure. Despite the lower financial performance, the trading for FY2021 has been encouraging with a strong order book and high levels of WIP (work in progress). Total order book of the company grew by 39.22 per cent in 2020.

For the financial year 2020, the Company’s performance was significantly impacted by Covid-19; the Legal Completions and Revenue were down by 37 per cent. The Company’s profitability was also affected; the PBT (profit before taxation) declined significantly by 66 per cent, due to impairment charges and costs incurred for scaling-back the business in London along with the economic impact of Covid-19 pandemic; whilst the EPS declined by 64 per cent.

The Company has focused on attaining cost efficiencies and debt management. In addition, the Company has a robust order book. The housebuilder has witnessed an increase of 12 per cent in reservations during the first 11 weeks of FY2021 and aims to carry on with the same momentum for the rest of 2021.

Comparative chart of the 6-month period: FTSE 250 vs RDW

(Source: EODHD/Others, Thomson Reuters)

The shares of the UK based housebuilder have outperformed the mid-cap index (FTSE 250) in the last six-month period; RDW shares have delivered a price return of nearly 30 per cent. On 21 September 2020, the stocks were trading at GBX 382.00 (11:04 AM GMT+1), down by 7.86 per cent from its previous closing.

Galliford Try Plc

Galliford Try Plc (LON:GFRD) is a company into the business of housebuilding, construction and regeneration. The Group looks forward to reinstating dividend pay-out once it returns to profitability.

Key Contracts Won by Galliford in 2020

• £20 billion contract of Construction Works and Associated Services Framework for Crown Commercial Services
• £1.5 billion YORbuild Major Works Contractors Framework in the north of England
• £100 million of education facilities
• £85 million mixed-use development at London
• £54 million women's national prison facility at Cornton Vale, Stirling

(Source: Company’s filings, LSE)

The company’s current order book increased to £3.2 billion in 2020 from £2.9 billion in 2019. Most of these orders (around 68 per cent) belong to the public sector projects. The Group had net cash of £197.2 million as on 30 June 2020. The company is fundamentally sound and is well-poised to support its future plans.

The Company’s supply chain has been impacted by the uncertainty created due to ongoing Brexit or COVID-19 situation. The Group’s business is exposed to economic and market fluctuations, which may adversely affect the Group’s business and financial performance. Furthermore, the sector is also exposed to political, financial, and operational risks, each of which has the potential to impact company/industry performance significantly.

The Group has entered the new financial year 2021 with a strong order book. The Group expects improved operating margins while adhering to a disciplined approach in contract selection and cost optimisation measures. However, the Group is widely exposed to the Brexit and COVID-19 related uncertainties and devaluation of the Sterling, which could be detrimental for the performance of the Group. On 21 September 2020, the stock of the company was trading at GBX 82.18 (11:30 AM GMT+1), down by 3.17% against its previous day closing price.

The housing sector has picked up steam in recent times. Though there are concerns as well, a decrease in consumer spending followed by the end of furlough scheme next month could impact the performance of the businesses in the sector. Moreover, the supply chain of the Housebuilders could be severely impacted in case of a hard Brexit. However, there are many growth catalysts working in favour of the sector, and once the economic situation comes under control, other companies from the sector will also be encouraged to announce dividend with improving finances.