Cedar Woods Properties Limited: A juicy fully franked dividend play

Is it time to take a punt on property developer Cedar Woods Properties Limited (ASX:CWP)?

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Cedar Woods Properties Limited (ASX: CWP) offers a trailing dividend yield of 5.7%, fully franked, and the company is forecasting a record net profit of $41 million this financial year.

That could see dividends rise again – offering savvy investors a chance to pick up a quality company, paying huge dividends and offering strong future growth.

With uncertainty surrounding the outlook for Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC), now might be a time to check out some smaller companies like Cedar Woods.

Since August 2014, when shares reach an all-time high of $7.96, shares have dropped 31% as investors run away from a company that generates cyclical lumpy earnings. As an example, the first half of the 2015 financial year saw revenues down 24% and net profit crashing 56% to $9.06 million, compared to the prior year's half.

But the evidence of the cyclicality is that in this financial year, Cedar Woods is forecasting a net profit of around $32 million for the second half, to meet its full year target of $41 million.

As a property developer with projects in Western Australia, Victoria, and Queensland, sales and profits can come in various times that don't align to six-monthly accounting periods. As the chart below shows, revenues and profit can jump around significantly – and the full year results are more important than the half year's.

Cedar Woods Properties revenues and net profit
Source: Annual reports

Now here's the full year results showing how consistent Cedar Woods has been on an annual basis for the past five years, including my revenue forecast for this financial year, and the company's 2015 net profit forecast.

Cedar Woods properties revenues and net profit
Source: Annual reports

Clearly then, Cedar Woods has been sold off by investors who have had little understanding of the company, offering an opportunity for us.

Financials

At the current price of $4.92, Cedar Woods sports a market cap of around $373 million. With net profit forecast to come in at $41 million, that's an unassuming P/E ratio of just 9.3x. The current dividend yield is around 5.7%, and the company is likely to pay a similar dividend when it reports in August as it did last year. Anything above 27.5 cents will be a bonus and push that dividend yield higher.

Outlook

The geographical diversification of operating in 3 states means Cedar Woods is exposed to different property cycles at different times, and further diversification should lead to less lumpy earnings over time. A weakening Western Australian property market over the next five years is also expected to come as the Queensland market strengthens.

However, Cedar Woods says it has found strong growth is occurring in well-located projects, close to transport infrastructure and in growth corridors. The company says it expects to take momentum into the 2016 financial year, with a number of presales achieved already.

Now might be the time to take a closer look at Cedar Woods.

Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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