A huge dividend share to buy today: Tamawood Limited

Queensland-based housebuilder Tamawood Limited (ASX: TWD) today reconfirmed that it expects net profit after tax (NPAT) to rise by between 20% and 25% in 2016. This result will be achieved despite the inclusion of expenses related to opening new offices in Sydney, Coffs Harbour and Ballina and closure of offices in Adelaide and Melbourne.

The company also reiterated that it will pay total dividends of 25 cents for the year which represents an attractive 7.8% yield before franking credits at current prices. The high yield may be because the company operates in an out-of-favour sector as many believe that current high house prices are unsustainable.

Despite this, Tamawood is forecasting continued growth into 2017 as strong 2016 sales flow through. Meanwhile costs remain tightly controlled and the company attributes this in part to its use of Resiweb enterprise software, a product designed for small house builders.

The company increased its interest in Resiweb Limited which owns Resiweb software to 23.4% during the 2016 financial year, up from 19.4% in 2015. Resiweb is based on in-house software developed over 20 years by Tamawood and will soon be released for commercial sale.

Tamawood is looking to grow its Australian business through a franchise model and Resiweb could boost the company’s appeal to potential franchisees. The company could also benefit from its share of Resiweb profits should the software be successful.

Resiweb Limited was spun out of Tamawood in 2012 by way of an in-specie distribution to Tamawood shareholders on a one for one basis. It subsequently acquired Tamawood Research and Development Pty Ltd from Tamawood in 2014 in return for a 19.4% ownership stake.

Director Lev Mizikovsky owns 48.7% of Tamawood and is also the chairman of Resiweb Limited. Tamawood’s interest in Resiweb Limited was not considered to be material in the company’s 2015 annual report.

Tamawood enjoys a competitive advantage in the form of its low cost model. Wages as a percentage of revenue were just 6.2% in 2015 versus a 2012 industry average of 16.6% according to Housing Industry Australia Ltd data.

This may explain the company’s decent track record as a listed entity with its share price rising 101.3% over the last 10 years and dividends paid representing an additional 145.3% return. Whilst Tamawood would likely suffer in an adverse housing market, it should cope better than most of its competitors given its successful history and the fact it is debt free.

If you're after high dividends but without exposure to the housing market, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. 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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