Forget a buy-to-let! Taylor Wimpey is a FTSE 100 stock with a 9% dividend yield

Taylor Wimpey plc (LON: TW) could offer a significantly higher income return than the FTSE 100 (INDEXFTSE: UKX) and buy-to-let.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the FTSE 100 yielding 4% at present, its income return is relatively high. Certainly, it may be possible to achieve a higher income return from a buy-to-let property. But once costs such as wear and tear, mortgage payments and void periods have been factored in, the reality is that the income return may be significantly lower than 4%.

Given that FTSE 100 house-builder Taylor Wimpey (LSE: TW) has a dividend yield of around 9%, it could offer income investing potential over the coming years. Alongside another property-focused stock which released an update on Tuesday, it could be worth buying for the long term.

Strong momentum

The company in question is student accommodation manager and developer Unite Group (LSE: UTG). Its trading update showed it has continued to experience strong demand, with market dynamics being supportive. This has enabled it deliver a portfolio that is 98% let for the 2018/19 academic year, with full-year rental growth in line with its 3-3.5% target.

The company has been able to deliver further improvements in customer satisfaction scores, and is on track to deliver its full year efficiency targets of 75% net operating income margin, as well as 25-30 basis points overhead efficiency.

With a dividend yield of 3.3%, Unite Group may not be the highest yielding stock in the FTSE All-Share. However, its resilient financial and operational performance suggests its business model is sound, and the prospect of rising dividends in future years is high. And with a 3.8% dividend yield forecast for next year, the income return prospects for the business seem to be sound.

Bright future

As mentioned, the Taylor Wimpey share price has a dividend yield of 9% in the current financial year. Although this includes a special dividend, the current level of payout seems to be affordable. The company’s dividend cover is expected to be 1.4 times in the current year, which suggests that dividend growth could be ahead as a result of a forecast rise in earnings over the next couple of years.

Of course, the prospects for the UK economy, and for the housing market, remain uncertain. Brexit could mean that confidence in the industry comes under pressure. But this could create an opportunity to buy house builders while they include a margin of safety, with Taylor Wimpey having a net cash position, large land bank, and being set to benefit from a continued loose monetary policy over the coming years.

Therefore, while paper losses may be recorded by its investors in the near term, in the long run the prospects for the business seem to be positive. Trading on a price-to-earnings (P/E) ratio of 9.1, Taylor Wimpey appears to offer a wide margin of safety. This could allow it to generate a high capital return alongside its sky-high dividend yield, which means that now may be the perfect time to buy it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Taylor Wimpey. 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.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »