This 5.8%-yielding FTSE housebuilder looks cheap to me right now!

After a tough period for the UK housing market, this big FTSE 100 builder looks in a good position to benefit from new initiatives.

| 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.

Bronze bull and bear figurines

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.

Like all housebuilders in the UK, the FTSE 100’s Taylor Wimpey (LSE: TW) has seen lean times in recent years. High mortgage rates combined with a cost-of-living crisis worsened the already grim housing market caused by Covid.

However, 1 August saw the Bank of England cut interest rates for the first time in four and a half years, to 5%. The bank’s governor added on 19 September that he is optimistic that “interest rates are going to come down”. 

The government’s pledge to build 300,000 new homes yearly for five years is also positive for the housing market’s outlook. If this target is met, it should mark a turning point in the fortunes of the UK’s major housebuilders.

Should you invest £1,000 in Domino's Pizza right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Domino's Pizza made the list?

See the 6 stocks

Business outlook

Taylor Wimpey’s H1 2024 results reflected both the bearish reality of the previous six months and some bullishness ahead.

Operating profit dropped 22.6% to £182.3m. This partly reflected another £88m added to the cost of fire-safety-related cladding due to inflation.

Nevertheless, CEO Jennie Daly highlighted that mortgage availability remains good, and the firm is well positioned for growth from 2025.

She expects full-year completions to be towards the upper end of the previous guidance range of 9,500-10,000. This would also reduce the cost per unit built, which should boost the firm’s underlying operating margin from H1’s 12%.

A risk here is that interest rates rise again, preventing any near-term falls in mortgage rates. Another’s government slippage in meeting its housebuilding targets.

However, analysts forecast that the firm’s earnings will grow 17.2% a year to end-2026.

Are the shares cheap?

Taylor Wimpey’s share price has already begun to bounce back from its 12-month 23 October traded low of £1.65. However, at £1.65 it’s still 30% lower than when Covid began to surge in the UK in February/March 2020.

To ascertain whether it’s currently cheap, I looked at the key price-to-book ratio (P/B). It currently trades at a P/B of 1.3 compared to a peer group average of 1.4. So it’s cheap on this basis.

discounted cash flow analysis shows the stock’s 24% undervalued on its current £1.65 price. This implies a fair value for the shares of £2.17.

Created with Highcharts 11.4.3Taylor Wimpey Plc PriceZoom1M3M6MYTD1Y5Y10YALL25 Sep 201925 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

The bonus of a high yield

In 2023, Taylor Wimpey paid a total dividend of 9.58p, which yields a very healthy 5.8%. By comparison, the present average FTSE 100 yield is 3.6% and the FTSE 250’s is 3.3%.

So, £10,000 invested in the stock with the dividends compounded would generate an additional £7,835 after 10 years. After 30 years on the same average yield, it would have made another £46,735.

Analysts forecast that the dividend will rise to 9.62p in 2025 and 9.76p in 2026, giving respective yields of 5.8% and 5.9%.

Will I buy the shares?

I focus now on very-high-yield shares (over 7%), so this stock is not for me at present.

However, if I were casting a broader investment net, then its undervaluation and good yield would appeal to me.

That said, I would not buy it without first seeing proof of the government’s new housebuilding commitment in action.

Should you invest £1,000 in Domino's Pizza right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Domino's Pizza made the list?

See the 6 stocks

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.

Simon Watkins has no position in any of the shares mentioned. 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

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »

Investing For Beginners

Why the FTSE 250 could outperform the FTSE 100 for the rest of the year

Jon Smith explains why the FTSE 250 could do better than its big brother when factoring in domestic exposure and…

Read more »

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

Tariff fears send the Lloyds share price tumbling, but the dividend yield is climbing

Just when the Lloyds Banking Group share price had been rising steadily, along comes a global upheaval to knock it…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how a stock market crash could help an investor retire years early

A stock market crash can be alarming -- but for the well-prepared investor, it can also be an exceptional opportunity…

Read more »

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »