I love my dirt cheap Taylor Wimpey shares. Should I buy more?

I saw an opportunity to buy cut-price Taylor Wimpey shares in the autumn and I’m glad I did. Now I’m wondering if I should hit the buy button again.

| 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.

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on

Image source: Getty Images

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.

I bought Taylor Wimpey (LSE: TW) shares twice in September, only to watch them plunge 12%. They looked so cheap after that, I bought them again in November. Later that month, I received my first dividend and reinvested it straight back into the stock.

I invested a modest £4,077 in total and I’m sitting on a gain of 20.66%, or £842. My stake is worth £4,919 but these are early doors. Like all the stocks I buy, I hope to hold Taylor Wimpey for a minimum of five to 10 years, and ideally a lot longer than that.

I’ll continue to reinvest all the dividends I receive, which should build my stake if they continue to roll in (no guarantees, as ever). I’m hoping for some capital growth along the way, if the share price continues to recover (again, no guarantees).

I’d call this a good buy, so far

Over 12 months, Taylor Wimpey shares are up 36.02%, but they’re down 2.05% over five years. The stock has got a long way to go recover its lost value.

I decided UK housebuilders looked undervalued ever since they crashed 40% after the shock Brexit vote in 2016. Yet they continued to struggle even as property prices flew to new highs.

I didn’t quite understand this. Given property shortages, low interest rates and rising prices, I thought they should do much better. Plus they paid super dividends.

Last summer, I saw an opportunity looming. Investors were still down on housebuilders, as interest and mortgage rates rose. Yet I decided the panic had been overdone. Although first-half profits had tumbled 29% to £237.7m, Taylor Wimpey retained a robust balance sheet with net cash of £654.9m, up from £642.4m a year earlier.

When I bought Taylor Wimpey, it was forecast to yield more than 8%. I was a little concerned by dividend cover, which looked thin and still does. It has halved from two to one. 

Happy to hold for years

Consensus suggests the dividends are safe, but unlikely to grow much. The forecast yield is a solid 6.43% in 2023 and 6.3% in 2024. I can live with that. Those yields are based on a higher price than I paid.

Taylor Wimpey shares are more expensive than they were. I bought them at less than six times earnings. Today, they trade at 7.8 times. That’s still cheap though.

Much now depends on the outlook for interest rates, just as it did last year. If rates continue to fall, and the Bank of England isn’t too far behind the curve, my Taylor Wimpey shares could climb higher. New mortgage rates are already below 4%, so fingers crossed.

However, if inflation shoots up, say, because of problems in the Red Sea, Taylor Wimpey shares will be vulnerable. Investors could lose faith and my gains could quickly reverse. Investors will react badly if today’s positive expectations are dashed.

If I didn’t own the stock, I’d buy it today. I do own it though, and I’m happy to hold what I’ve got. I’ll leave my shares to quietly do their thing, and look for the next bargain stock.

There are plenty more cheap FTSE 100 shares that I’d like to buy today.

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.

Harvey Jones has positions in Taylor Wimpey Plc. 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

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »

Investing Articles

As like-for-like sales continue to fall, is the B&M European Value Retail SA (LSE:BME) share price a bargain?

B&M European Value Retail is known for its low prices, but could growing like-for-like sales make the share price the…

Read more »