Last year I decided Taylor Wimpey (LSE: TW) shares looked too cheap to ignore and bought them on three occasions.
The FTSE 100 housebuilder had a solid balance sheet and I reckoned its stock would fly once it became clear that inflation was on the run, and interest rates were set to fall. I prefer to load up on shares before they recover, rather than afterwards. That way I get them at cheaper price, which gives me more shares for my money.
It also gives me a bit of protection on the assumption that shares that are already cheap are unlikely to fall as far if things get worse before they get better.
I love buying cheap shares
Best of all, it gives me a shot at getting in ahead of the recovery (assuming the recovery comes). History suggests that the early stages of a rebound are when the juiciest future gains are put in place.
With Taylor Wimpey shares trading at around six times earnings, how could I resist? Better still, they were paying income of around 7% a year. That’s because when share prices fall, dividend yields automatically rise.
I tested the waters by purchasing 866 shares on 1 September 2023, and another 801 shares on 21 September.
I bought another 1,587 shares on 15 November, and got my first dividend six days later, which I reinvested to buy 61 more shares. In total, I’ve got 3,315 Taylor Wimpey shares and for a while I was flying, up 20% overall. Today, not so much.
The rosy scenario I had anticipated is on hold. Rather than falling, inflation crept up to 4% in January. We’ll soon know the February figure, but the signs aren’t great, with US inflation proving sticky.
Plenty of dividends to come
We may have to wait longer than we would like for that first base rate cut. Instead of five or six cuts across 2024, we may just get two or three. Mortgage rates have been rising in recent weeks, although house prices are holding up, rising 1.9% over the year to January, according to Halifax.
Today, my 3,315 shares are worth £4,633. I’m up £555, a rise of 13.52%. Which isn’t bad, given that my most recent purchase was just four months ago, and I’ve only received one dividend so far.
The Taylor Wimpey share price is down 4% in the last month, after full-year results published on 28 February showed property completions falling from 14,154 in 2022 to 10,848 in 2023, with another, smaller, drop anticipated in 2024.
The stock is up 23% over 12 months, so few investors will be complaining. But I’d like to see Taylor Wimpey building more properties, and growing its revenues and profits as a result.
There’s no way I’m going to sell. I plan to hold for years to allow time for my dividends to compound (assuming they keep flowing – no guarantees) and the share price to recover. It was always going to be a bumpy ride. That’s why I was keen to get in at a good price. I won’t buy more at today’s valuation of 14.19 times earnings (double what I bought at). Instead, I’ll let the stock get on with it, while I decide which company to buy next.
