Can Taylor Wimpey rocket like the IAG share price?

The IAG share price smashed the FTSE 100 last year but Harvey Jones thinks it may struggle to repeat that stellar return. Instead he’s backing Taylor Wimpey.

| 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.

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

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.

The share price of IAG — or International Consolidated Airlines Group (LSE: IAG) as it should be called — doubled last year, making it the FTSE 100‘s standout performer.

Shares in the British Airways owner soared as global travel rebounded post-pandemic. Sadly, I don’t hold IAG, so could only watch from the sidelines.

At the same time, my stake in FTSE 100 housebuilder Taylor Wimpey (LSE: TW) tumbled 25%. Rising interest rates and a sluggish housing market were the culprits here. Sadly, I do own Taylor Wimpey.

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

It’s not uncommon for one year’s winners to become next year’s losers — and vice versa. So, could their fortunes reverse in 2025?

Has the IAG share price hit a ceiling?

IAG benefitted from pent-up travel demand, with passengers keen to fly and happy to pay more for the privilege fares. Yet the scars of Covid remain. Airlines seem perpetually vulnerable to global challenges, including wars, climate change, recessions and even volcanoes.

I think IAG shares could still climb higher. They look cheap, with a price-to-earnings (P/E) ratio of just 7.2. That’s less than half the FTSE 100 average. 

The board plans to modernise fleets, expand long-haul routes and enhance the customer experience, all of which could boost profitability.

But those ambitions come with costs and IAG already has net debt exceeding €6bn. Budget airlines also pose stiff competition. Do passengers really want to pay extra for better service?

Falling fuel prices helped IAG last year, but today’s rising oil price could squeeze margins if it continues. Inflation and higher interest rates may also discourage travel. While the dividend is back, I think the real excitement around IAG has passed.

For a while last year, my Taylor Wimpey shares were flying. Better still, I was getting a fantastic 7% yield. Then things went south.

Inflation and interest rate hikes struck have nudged up mortgage rates and cooled (but not killed) the property market. 

The Taylor Wimpey share price has dropped another 10% in the last week as rising UK bond yields signal economic trouble.

Taylor Wimpey has a stunning yield

The company’s latest trading update reflected these challenges, noting a drop in sales and persistent uncertainties. Still, I see reasons for optimism.

The UK’s chronic housing shortage isn’t going away. Taylor Wimpey boasts a strong land bank and a solid balance sheet. Its P/E ratio of 10.94 might not be as low as IAG’s, but it still looks like a bargain to me.

Even better, the dividend yield now stands at a staggering 8.58%. As far as I can tell, the payout is secure. There’s no chance I’m selling my shares.

The 16 analysts following Taylor Wimpey predict a median share price increase of over 42% in the next year, which, combined with the yield, suggests a potential total return of around 50%. Not quite IAG levels but still pretty handsome.

Personally, I think that might take longer than a year to play out, but the potential is there.

Last year, I wish I’d owned IAG. Today, I’m backing Taylor Wimpey. While I wait for the recovery, I’m happy collecting and reinvesting its bumper dividend.

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.

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

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 »