Why I'd buy dividend stocks Taylor Wimpey plc and St James's Place plc with £3,000 today

Today's full-year report from housebuilder Taylor Wimpey(LSE: TW) shows the underlying business is in good health. Revenue rose almost 8% in 2017 compared to the year before, adjusted operating profit lifted a little over 10%, and net cash on the balance sheet swelled by around 40% to almost £512m.

The company earned just over 3% of its operating profit from its small business in Spain but the rest came from activities in the UK, making the firm a good barometer of the health of the British housing market. 2018 has started well and the directors are encouraged by "solid levels of demand coming into the spring selling season." They reckon the fundamentals are strong for new housing in the UK and customer confidence is high, driven by a competitive mortgage market, low interest rates, and the government's Help-To-Buy scheme.

Dividends through the cycle

But the stock fell around 4% in early trading today and has made little progress since hitting a peak just above 190p in August 2015, despite the underlying business scoring ongoing annual advances in earnings and revenue. I think the market is discounting the firm's progress by compressing the valuation because of the sector's cyclicality -- the market expects revenues and profits to cycle down again at some point and it's 'thinking' ahead to allow for that.

The directors said in the report: "We are committed to providing a reliable dividend stream for our investors through the cycle." The firm plans to pay an ordinary dividend annually, "including through a 'normal' downturn", with special dividends being paid at "appropriate times in the cycle."  

This year, there's a special dividend of 10.4p per share, which combines with an ordinary dividend of 4.9p to make a total of 15.3p, up almost 11% on what investors received in dividends during 2017. Today's share price of around 190p throws up a forward dividend yield of just over 8%, which is attractive if you remain mindful of the cyclical risks.

Brisk trading

Meanwhile, wealth manager St James's Place (LSE: STJ) issued its full-year results report today under the headline 'Record Business Performance Supports 30% Increase In Full-Year Dividend'. So it's safe to assume that things are going well.

Indeed during 2017, funds under management increased a little over 20% to almost £91bn from which the firm made underlying cash earnings per share up 40% on the year before. Chief executive Andrew Croft is optimistic about the future and believes the firm's core market will grow further, "driven by favourable demographic trends and the accumulation of investable assets as savers take on the responsibility for providing for their own well-being in retirement."

It's hard to argue with the trend of the 'wealthy becoming wealthier' that we've seen over recent years, so I reckon St James's place is operating in a market with a tailwind. At today's share price around 1,163p, the forward price-to-earnings ratio for 2019 comes out at just over 19 and the forward dividend yield runs around 4.7%. I think the stock is worth digging into with your research.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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