I’m the happy owner of 3,425 Taylor Wimpey (LSE: TW) shares, having bought the stock on three occasions last autumn, and received two dividend payments so far.
So far, I’m up 27% from a combination of share price growth and reinvested dividends, and I’m pleased with that. These are early days, after all. I hope to hold the FTSE 100 housebuilder for years and years, generating plenty of income and growth along the way.
FTSE 100 high-yielder
The Taylor Wimpey share price is up 28.8% over the last year. Longer-term investors may not be so happy, as it’s down 10.18% over five. However, they should still be ahead, after dividends.
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The housebuilding sector crashed around 40% after the Brexit vote in 2016, while the pandemic and cost-of-living crisis also wreaked havoc. House prices may have held relatively stable, but with inflation hitting double digits, they fell in real terms.
The slowdown hit revenues and profits at Taylor Wimpey, as both sale prices and completions dropped. That’s hardly surprising as construction’s a cyclical sector that benefited from near-zero borrowing costs for more than a decade.
I watched Taylor Wimpey’s share price from a safe distance. It retained a strong balance sheet, which allowed it to increase its dividend slowly but steadily. Then last September, I decided builders would recover as interest rate cuts loomed and mortgage rates dipped in anticipation.
Sadly, hopes of six rate cuts in 2024 have gone by the board. The election put paid to chances of a cut in June, so now we have to wait until August. We may only get a couple by year end.
Top recovery stock?
I can afford to be patient. Mortgage rates will fall at some point and, given the UK housing shortage, prices should start to pick up. However, I accept that the UK is in a bad place right now, and the recovery’s likely to be slow and stuttering.
With luck, the dividends will compensate. Taylor Wimpey shares yielded 6.5% in 2023 and are forecast to yield 6.3% in the year ahead. I do have one concern though. Next year’s payout is covered just 0.9 times by earnings, which makes it vulnerable.
However, the group has a policy of distributing a percentage of its assets rather than free cash, which will hopefully underpin payments. I’ll be watching closely.
The board increased the full-year 2023 dividend by a modest 1.91%, to 9.58p per shares. A similar hike would lift it to 9.76p in 2024. If I increased my current stake to 10,000 shares, that would give me income of £976 a year.
At today’s price of 149.3p, buying 10,000 Taylor Wimpey shares would cost an investor starting from scratch £14,930.
Since I already own 3,425 shares, I’d only need to buy 6,575 shares, which would cost me £9,816. Sadly, I don’t have that amount of cash to hand today and if I did I’d probably use it to diversify into another sector.
Yet I think Taylor Wimpey shares will jump again when that first interest rate cut looms. I’d happily invest a smaller sum today, to continue my policy of building my position over time.
