Harworth increases dividend even as sales sink

When a company’s revenue and pre-tax profit crater, and when there are no adjustments to those figures, that’s usually a sign that a dividend cut is coming. Not for Harworth (HWG). Instead, in its results for the six months to 30 June, the brownfield land specialist continued its policy of increasing its dividend by 10 per cent a year – come what may.

The policy makes more sense when you realise how conservative the payout is. Harworth’s first-half earnings still cover its dividend more than twice over despite its performance slump, which chief financial officer Kitty Patmore pinned on the strength of the residential market last year rather than a weakness from the company this year. “Last year was an exception,” she says.

However, even if you ignore the strong comparator, H1 2023 still looks mediocre. Management says the period’s revenue is “broadly in line with H1 2020 and H1 2021”, although it still came up short for both periods.

Despite all this, we remain sold on the long-term case for Harworth. It has struggled since Liz Truss’s 'mini' Budget caused turmoil in bond markets and property values to plummet, but not as much as other property companies. While they posted losses due to heavy valuation hits, Harworth’s land and warehouses held their value. Its vast landbank and strategy of either waiting to sell that land to housebuilders at the price it wants or building warehouses on it when it has a lease in place – combined with a much lower loan-to-value ratio than most real estate investment trusts (Reits) – means it can ride out this downturn.

This approach might frustrate investors looking for meteoric growth and industry-beating dividend payments. But it should appeal to investors looking for stability over the next decade. Buy.

Last IC View: Buy, 117p, 13 Apr 2023