Housebuilders took a hit in this year’s stock market crash, but many have already bounced back strongly. FTSE 100 firm Taylor Wimpey (LSE: TW) has seen its share price rise by almost 50% from March’s low point of 101p.
Despite this gain, Taylor Wimpey shares are still down by around 25% from the levels seen at the start of this year. With lockdown set to end and housing developments reopening for viewing, I think we could see fresh interest in this housebuilding stock in June.
A quick recovery?
FTSE 100 member Taylor Wimpey went into lockdown with a £2.6bn order book and a cash pile of £836m (22 April).
To my surprise, the company has managed to continue selling new homes remotely during lockdown, even without viewings. According to figures published on 13 May, Taylor Wimpey sold 408 homes during the lockdown period, net of cancellations. On 10 May, the company’s order backlog of 11,033 homes was actually higher than at the same time in 2019.
I have to admit I’ve been surprised by this continued demand for new homes. I thought that lockdown might trigger a lasting slump in the housing market. Of course, we don’t yet know what will happen over the next six months, but the news so far is definitely better than I expected.
For this reason, I’m excited to see what will happen in June, now that the housing market is properly open for business again. If sales return to pre-lockdown rates, I think Taylor Wimpey’s share price could rise sharply.
Will the 10% dividend yield return?
Taylor Wimpey’s decision to use the government’s furlough scheme meant that the board had little choice but to cancel planned dividends.
Shareholders have missed out on the 2019 final dividend and a special dividend planned for July. Together, these would have cost the company £485m – around 14.8p per share. Based on Taylor Wimpey’s last-seen share price of 150p, shareholders would have received a 10% dividend yield this year.
This loss is a disappointment, especially as the group ended 2019 with net cash of £392m. However, I don’t think Taylor Wimpey has used any other government assistance schemes. So if trading returns to normal fairly quickly, I think there’s a good chance that dividend payouts could restart fairly soon.
Taylor Wimpey shares: Buy or sell?
There’s definitely a bull case for buying Taylor Wimpey shares. At the time of writing, the stock trades on just eight times forecast earnings, with a relatively modest price-to-book value of 1.5. Interest rates are at record lows, which means mortgage finance should remain cheap.
However, I think it’s important to remember what could go wrong. The biggest risk I can see is that it’s simply too soon to know how the pandemic will affect housing sales and the wider economy. A recession seems likely to me, even if it’s brief.
If you believe the outlook for the housing market is strong, then I think Taylor Wimpey shares could be a decent buy at current levels. But if you share my cautious view on housing, then I’d avoid this stock for now.
