My favourite income stock is suddenly 20% cheaper and yields 7.26%! Time to buy more?

Harvey Jones has just seen the gains on his favourite FTSE 100 income stock largely wiped out as the shares head south. Is this his chance to buy more of it?

| 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.

artificial intelligence investing algorithms

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.

When I bought Taylor Wimpey (LSE: TW) shares last year, I thought I’d found my perfect FTSE 100 dividend income stock. 

They looked fantastic value, trading at around six times earnings, while offering a superb dividend yield of around 6.5%. Better still, the share price looked ready to roll, with consumer price inflation finally in retreat.

I thought peak interest rates would boost Taylor Wimpey in several ways. First, and most obviously, this would cut mortgage rates, boosting buyer demand.

Should you invest £1,000 in Games Workshop 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 Games Workshop made the list?

See the 6 stocks

I still love my shares

Second, with inflation on the run, the group’s input costs such as labour and materials would fall, widening margins.

Finally, savings rates and bond yields would slide, encouraging income seekers to take a bit more risk with FTSE 100 stocks like Taylor Wimpey, to generate a superior yield. That would support the share price.

The Taylor Wimpey balance sheet looked surprisingly strong, given the damage inflicted by the pandemic and cost-of-living crisis.

Dividend prospects looked solid too. Apart from the inevitable Covid cut in 2020, the board had made a habit of increasing it slightly every year as this chart shows.


Chart by TradingView

I’ve rarely bought a stock with this much confidence. I enjoyed the experience so much, I bought Taylor Wimpey shares three times in 2023. Just a few months ago I was sitting on a 40% capital gain from the rising share price and had reinvested a few dividends too.

Markets are forward-looking. Interest rates hadn’t actually fallen, but all the anticipated rewards were still coming through. Then suddenly it went wrong.

The share price has slumped by 19.67% in the last three months. It’s up just 6.28% over 12 months. That’s still a total return of around 13%, but it’s way less than I had just a few short weeks ago. Should I turn this short-term volatility to my advantage, by snapping up more stock?

Brilliant buying opportunity? I think so

The main culprit is the Budget, which the Bank of England has warned could increase inflation. That means high interest rates for longer. Labour’s national insurance hike will also drive up staff costs. Taylor Wimpey employs 5,000.

There’s also growing scepticism over whether Labour can hit its ambitious housebuilding targets, and whether builders like Taylor Wimpey are able to scale up and boost completions. Or if they even want to.

On 7 November, the board shrugged off the Budget to maintain full-year outlook as customer demand picked up thanks to falling mortgage rates and improved affordability. Its order book jumped from £1.9bn to £2.2bn. That should have lifted Taylor Wimpey shares but given wider worries, it didn’t.

The stock isn’t as cheap as it was, with a trailing price-to-earnings ratio of 13.28. It still looks pretty good value. The trailing yield is a bumper 7.26%. That’s forecast to hit for 7.42% in 2025. Net debt is down to £84.7m.

Interest rate cut hopes may have dwindled, but I still think Taylor Wimpey shares would be a brilliant buy for me at today’s reduced price. I’d fill my boots if it wasn’t already one of my biggest portfolio holdings.

Should you invest £1,000 in Games Workshop 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 Games Workshop 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.

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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »