In the FTSE 100 index, housebuilding company Taylor Wimpey (LSE: TW) has been doing well.
Good trading in the business has powered a nice uptrend for the share price over the past couple of years.
However, the valuation still looks modest. With the share price near 161p, the forward-looking dividend yield is almost at 6% for 2025.
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An improving environment?
City analysts predict a double-digit percentage rebound in earnings that year. Meanwhile, the environment for housebuilding businesses may be set to improve if a lighter planning regime beds in under the new government.
In late July, Taylor Wimpey’s half-year report was upbeat and spoke of a “good” operating performance in the six months to 30 June.
Chief executive Jennie Daly said the market backdrop in the period was “relatively” stable. The business saw a “good” rate of sales without the need to cut prices much.
Despite high interest and mortgage rates, 2024 full-year completions in the UK will likely be at the “upper end” of earlier guidance. So that means the firm will likely complete around 10,000 homes. The performance should deliver operating profit in line with expectations.
Daly welcomes the new government’s recognition that planning has been a “major” barrier to economic growth. The directors are looking forward to delivering “much needed” new homes across the UK.
It’s possible we’ll see a boost to the housebuilding industry. So owning shares in Taylor Wimpey may prove to be a good idea in the coming years, although positive outcomes are never guaranteed.
The ebb and flow of cyclicality
The stock comes with risks as well as opportunities. Perhaps the biggest uncertainty is the cyclical nature of the industry.
There have been some big, multi-year swings in earnings, cash flow, borrowings, shareholder dividends and the share price in the firm’s history. So there’s no denying that Taylor Wimpey needs a supportive environment and a half-decent economy to thrive.
Things look promising now, but that may not always be the case. It would be easy to lose money on the stock if an investment is mis-timed.
Nevertheless, the company has a strong-looking balance sheet showing net cash rather than net debt. That suggests the firm has been putting money away during times of good trading. But as mentioned, it may need that cash later just to keep the lights on.
Daly thinks the company has a “strong and agile” business with a “sharp” operational focus. On top of that, it owns a high-quality landbank and is “well positioned” for growth from 2025 — as long as supportive market conditions remain.
On balance, and despite the risks, I see the high dividend yield as attractive. That makes me inclined to carry out further research now with a view to adding a few of the shares to a diversified, long-term portfolio.
