Are housebuilders now the play for passive income seekers? Yields across the sector are looking juicy and none more so than Taylor Wimpey (LSE: TW) whose dividend forecast might look very tempting given a current dividend yield of 5.74%.
That’s pretty impressive after a 57% increase in share price since late last year. Pair that with a government keen to get building, and we might have a recipe for a solid income return for years to come.
A peek
A prudent first step when looking at any dividend stock is to take a quick peek at the forecast. The dividend yield is a backwards-facing measure, remember, and tells us what we would have got rather than what we will.
The forecast also highlights any upcoming speed bumps thanks to the work of City analysts whose consensus gives us a fairly good idea of what the yield will be.
| Dividend | Yield (at current share price) | |
| 2024 | 9.35p | 5.75% |
| 2025 | 9.61p | 5.91% |
| 2026 | 9.56p | 5.88% |
| 2027 | 9.85p | 6.06% |
Just on those figures which, as I mentioned, are by no means guaranteed, I might expect a level 6% or so payout in the next years. For those on the withdrawing part of their investing journey, that’s a pretty good deal when most investors are targeting a 4% drawdown rate and often lower.
As for me, I’m still building a nest egg with a few more years to play so that’s not enough for me to buy in alone. I’d like to see some growth thrown in there as well.
Any growth?
So what kind of growth story is there here? Taylor Wimpey will benefit from lowered interest rates no doubt. The latest news from the Bank of England is to expect “gradual” cuts. That will make borrowing cheaper and people should take up more mortgages. House prices will likely rise, too, which will further fatten the top and bottom lines.
But interest rates aren’t exactly a surprise to the markets. And looking at a share price that hit a low of 88p in 2022 and now is up to 163p, I fear much of that benefit is already baked in.
A more intriguing possibility is that of a new government making all the right noises about housebuilding. A lack of supply has been squeezing renters and those looking to buy, and one of the easier ways to remedy that would be to loosen regulations.
If those in power choose to make it easier for housebuilders like Taylor Wimpey then we may see a great run for the sector just as we did in the 2010s. That was a run that saw Taylor Wimpey shares in particular go up around eight times in five years.
That’s enough for me to keep an eye on the shares although I’m comfortable enough with my exposure in the sector so do not plan to buy as of this moment.
