Though major land developers have announced generous dividend payout plans because of strong earnings they made last year, analysts yesterday remained cautious about investment outlook for the sector.
Share prices of major players in the property sector have generally lagged behind the benchmark TAIEX this year, which analysts attributed to the negative impact of unfavorable policy measures.
On the main bourse, the building material and construction subindex — which reflects the general performance of property stocks — edged up 0.17 percent yesterday, weaker than the TAIEX’s 0.97 percent rise, Taiwan Stock Exchange data showed.
So far this year, shares in the property sector have picked up a lackluster 0.22 percent, compared with the main index’s 3.15 percent gain over the same period.
“I don’t think it is wise to increase holdings in property shares, as they may continue to underperform as the property tax plans pan out,” Hua Nan Securities Investment Management Co (華南投顧) chairman David Chu (儲祥生) said by telephone.
Chu stood by the conservative stance even though stocks in the sector have a relative low price-to-earnings ratio and several firms recently approved plans to distribute generous dividends to their shareholders.
Farglory Land Development Co (遠雄建設) said earlier this week it would distribute a NT$3.8 cash dividend per share from net profits of NT$501 million (US$16 million) last year, or earnings per share (EPS) of NT$5.99.
The dividend payout suggests a 10.6 percent dividend yield based on Farglory’s share price of NT$35.85 yesterday, down 0.97 percent from Wednesday.
High Wealth Construction Co (興富發) said last week it would distribute a dividend of NT$4 per share and an extra 0.3 percent stock dividend from NT$10.1 billion of net income earned last year, or EPS of NT$11.44.
The payout scheme would translate into a 5.26 percent dividend yield given its closing price of NT$76 yesterday, up 2.43 percent from a day earlier.
Huaku Development Co (華固建設) posted NT$5.08 in EPS last year and the company last month said it would distribute a NT$5 cash dividend, indicating a 7.8 percent dividend yield given that the stock ended 1.26 percent higher at NT$64.3 yesterday.
“Investors eyeing the dividend payout may end up with capital losses given the sector’s weak performance,” Chu said.
Investors need to price in inventory costs, as builders and developers might not be able to sell new projects this year given the weak sentiment, Chu said, adding that transaction volumes for existing homes dropped to a record low in the first quarter after hitting a 12-year low last year.
Kee Tai Properties Co (基泰建設) earnings for last year reached NT$3.18 per share, but the company’s board last week said it would distribute a cash dividend of only NT$1.25 per share, with the 39.4 percent payout ratio below its past level of above 70 percent.
However, the company’s dividend yield is still high at 6.44 percent, far better than local banks’ one-year deposit interest rate, based on the stock’s closing price of NT$19.4 yesterday.
There is good reason for Kee Tai to scrap the high-dividend policy, as the company might see a decelerating project sell-through in Taipei and higher taxes on its housing inventory, while it might need funds for future land acquisitions, Yuanta Securities Investment Consulting Co (元大投顧) said in a note.
Taishin Securities Investment Trust Co (台新投信) chairman Andy Wu (吳火生) gave a thumbs down to property shares, saying that the sector might remain weighed down by unfavorable news developments.
“Property prices are poised for downward corrections this year after rallying for more than a decade,” Wu said by telephone.
The government is trying to help achieve the effect by suggesting capital gains taxes on property gains. Against the backdrop, investors better stay away from property shares and bet on stocks with brighter earnings outlook, he said.
Some developers are also cautious about political uncertainties with the upcoming presidential elections next year and might postpone major projects until 2017, analysts said.
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