UK Housebuilders Pay Out Bumper Dividends as Profits Soar

Five of the U.K.'s biggest housebuilders announced bumper payouts to shareholders this week as they posted sizeable profit increases boosted by government subsidies for mortgages that stoked demand for new homes.

Barratt Developments PLC (BDEV.LN) Thursday announced an interim dividend of 3.2 pence, starting a program of payments covered three times by earnings a share two years ahead of schedule, while Redrow PLC's (RDW.LN) one pence payment was its first in six years. Both companies' pretax profits more than doubled in the six months to Dec. 31 over the year-earlier period.

Earlier this week, Bovis Homes Group PLC (BVS.LN) Monday raised its full-year dividend 50% to 13.5 pence. Persimmon PLC (PSN.LN) said Tuesday it will pay 70 pence to shareholders this year, having earlier budgeted for a 10 pence payout. They posted gains of 48% and 49%, respectively, for full-year pretax profit in 2013.

Several factors have made the U.K's recent property boom very profitable for major builders. Markets were picking up before the U.K. Government announced its Help-to-Buy program of equity loans and mortgage guarantees, but the incentives increased demand and let builders drop their own shared-equity offerings and other sweeteners, boosting margins. Banks cautious about their balance sheets are reluctant to lend to small builders, who have provided little competition for land.

Taylor Wimpey PLC (TW.LN) Wednesday pledged to pay at least 250 million pounds ($415.7 million) to shareholders over the next two years as it also posted a 48% gain in pretax profit for the full year.

Chief Executive Pete Redfern said in an interview with Dow Jones Newswires Wednesday that the company expects to pay out GBP200 million a year for the foreseeable future, "unless things change dramatically."

For Taylor Wimpey, the shift to bigger payments to shareholders comes as expenditure on land levels off. The company sold 11,700 homes last year; as it slows the pace with which it replaces the plots it builds on, sales will eventually stabilize around 14,000, Mr. Redfern said.

"Pushing significantly beyond that, unless the planning environment and availability of land changed, would mean we would have to compromise" on financial returns and the desirability of the locations the company is operating in, Mr. Redfern said.

In the past year, the shares of the five companies mentioned in this article have risen between 40%, Bovis, and 79%, Barratt. Except for Persimmon, the biggest by market value, they are constituents of the FTSE 250 index, which gained 5.5% in the period.

Write to Ed Ballard at [e-mail]

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