Even a solid FTSE 100 share with a strong balance sheet, modest valuation, generous yield and solid profit outlook can take a beating, as housebuilder Taylor Wimpey (LSE: TW) is showing us at the moment.
The Taylor Wimpey share price has slumped 17.73% over the last month. I hold the stock and I’m hurting. Over 12 months, it’s up just 2.77%.
I bought Taylor Wimpey shares on three occasions last year, and for a while they were bombing along. I was up more than 40% and was getting a 7% yield on top. Then everything went wrong.
Why are the shares crashing?
I went big on Taylor Wimpey because I was impressed by the way its balance sheet and share price remained relatively solid throughout the pandemic and cost-of-living crisis.
While revenues inevitably dropped in 2020, they quickly snapped back. They dropped again in 2023 but investors hung on in the hope that at some point inflation and interest rates would follow, making mortgages a lot cheaper.
On 7 November, the board backed its full-year 2024 outlook as demand and affordability improved. It expected to hit the upper end of its target of building 9,500 to 10,000 new homes, with operating profit in line with current market expectations of £416m.
That was down from £473.8m in 2023 amid fewer completions but the order book grew from £1.9bn to £2.2bn, excluding joint ventures.
Yet the Budget on 30 October hurt. Chancellor Rachel Reeves’ decision to load £25bn worth of extra national insurance contributions onto employers will squeeze Taylor Wimpey’s margins. They’re forecast to fall from 13.3% to 12% next year. A shortage of skilled labourers may also drive up wages.
Plus the Bank of England forecasts the Budget will drive inflation back up to 3% in 2025, and mortgage lenders are hiking rates.
I’ll hold for divided income and hope for growth
US President-elect Donald Trump’s policies are also expected to be inflationary, adding to interest rate concerns. Higher inflation will also push up Taylor Wimpey’s input costs.
In another development, Labour’s plans to build 1.5m homes in five years are looking a bit hopeful. Ironically that may support Taylor Wimpey, by limiting property supply at a time of sky-high demand.
The shares look reasonable value to me, trading at 12.8 times earnings. This remains a terrific dividend income stock. The 2024 yield is 7.34% and analysts expect this to hit 7.56% in 2025. Its track record is reasonably solid, as this chart shows.
Chart by TradingView
The 16 analysts offering one-year share price forecasts have set a median target of 167.65p. If that comes true, it’s up 29.32% from today. Which would be brilliant.
Interestingly, there isn’t that wide a range of recommendations. An impressive 12 call Taylor Wimpey a Strong Buy, two a Buy and two say Hold. None suggests selling. I’m certainly not considering it myself. I’d label it a Strong Buy too.
If I didn’t already have a big stake, I’d take this opportunity to buy more with a long-term view. Britain needs houses, and I think I need dividend growth stocks like Taylor Wimpey.
