The Taylor Wimpey share price is up 50% in a year – I think it’s got further to go

The Taylor Wimpey share price has exceeded expectations since Harvey Jones bought the stock last year. It offers fantastic dividends too.

| More 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.

The Taylor Wimpey (LSE: TW) share price has been going gangbusters, it’s up a staggering 53.71% over the last year. I’d expect that kind of return from a FTSE 250 growth stock, rather than a FTSE 100 housebuilder in the middle of a cost-of-living crisis.

That’s good news for me, because I bought Taylor Wimpey shares on three different occasions last autumn, at an average price of 123.66p. Today, I’d have to pay 151.60p. I’ve also received two dividends, and reinvested both. Taylor Wimpey shares have much further to go, in my view. I’m not the only one who thinks that.

FTSE 100 growth hero

The shares jumped when Labour won the election, as markets expect the firm will be a key beneficiary of chancellor Rachel Reeves’ push to build more homes. Yet I think investors have slightly got ahead of themselves.

Taylor Wimpey has warned it will struggle to complete 10,000 homes this year. That’s down from 14,154 in 2022 and 10,848 in 2023. It will need some big incentives to turn that around in a hurry. Especially if it hopes to maintain build quality.

Also, while PM Keir Starmer has pledged to “bulldoze through” planning reforms, change won’t happen overnight.

High interest rates, the rising cost of labour and materials, and the slowing economy have left their mark on Taylor Wimpey. Its return on equity has plunged. Let’s see what the charts say.

Chart by TradingView

There’s a danger the share price has raced ahead of fundamentals. I bought Taylor Wimpey at a valuation of around six or seven times earnings. Today, it’s valued at 15.22 times. So it’s not the bargain it was.

Solid dividend income

While the yield has retreated from the blockbuster 9.25% we saw in December 2022, it still looks pretty solid. Let’s look at another chart.

Chart by TradingView

Markets are forecasting income of 6.11% in 2024 and 6.25% in 2025. While marginally lower, at least it’s slowly climbing. The board has pledged to maintain dividends at every stage of the house market cycle, and return around 7.5% of net assets to shareholders annually, worth at least £250m a year. With £837m in net cash, today’s high yield looks sustainable.

When interest rates finally start falling, savings rates and bond yields will follow. With luck, Taylor Wimpey dividends will continue to rise, making the stock look even more attractive and drawing in new investors.

Naturally, there are risks. Interest rates may not fall as much as we would like. Taylor Wimpey may struggle to boost completions, with labour in short supply. If Starmer does manage to get 1.5m homes built in five years, increased supply could hit prices.

Obviously, the ideal time to buy Taylor Wimpey shares was a year ago. But I think today is pretty tempting too. The only thing stopping me from buying more is that I already have a big chunk of my pension tied up in this stock.

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

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »

Investing Articles

Unilever: a passive income stock with potential for decades of dividend growth

Stephen Wright thinks Unilever can keep reducing its share count for years to come. And this should help make it…

Read more »

Middle-aged black male working at home desk
Investing Articles

Worried about retirement? I’d buy high-yield dividend shares to build wealth

The number of pensioners enduring poverty in the UK looks set to rise. Investing in dividend shares could help Britons…

Read more »

Investing For Beginners

2 boring but beautiful FTSE 100 stocks to add to my ISA

Jon Smith runs over a couple of FTSE 100 stocks that he really likes the look of, even though they…

Read more »

Investing Articles

Here’s how I could supercharge my wealth by snapping up the best dividend stocks!

This Fool explains how dividend stocks play a crucial part of her aspirations to build wealth, and details one pick…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Revenue up 10% and accelerated growth potential for this overlooked FTSE 250 company

Today's first-quarter update from this good-value FTSE 250 company keeps me keen on the stock as recovery and growth continues.

Read more »

Investing Articles

Here’s why I’m so bullish about the BT share price now

The BT share price shot up after FY results, and a couple of months on it's still up there. Might…

Read more »