As we currently stand, Taylor Wimpey (LSE:TW) is one of the highest-yielding stocks in the entire FTSE 250. The dividend yield of 7.97% is generous, with dividends being paid on a semi-annual basis. If an investor had picked up this dividend stock at the start of 2023, here’s what the passive income generation would look like.
Getting the calculator out
For income stocks, the timing of purchases is important. This is because an investor needs to own the share by a certain date to be registered and receive the next dividend. It’s not like one can simply buy the stock the day before the dividend gets paid. For Taylor Wimpey, we’ll assume a purchase date of 1 February. On 2 March, a dividend of 4.78p per share was declared. This was paid on 12 May. The other dividends from then on would also have been received by the investor, with the most recent one being paid in November last year.
The total from the four dividends during this period is 19.15p per share. If an investor had bought at the opening price of 116p back in February 2023, the £10k initial lump sum would have bought 8,620 shares (I’m rounding it to the nearest share). Consequently, with 8,620 shares at 19.15p per share payments, the total amount received gross would be £1,650.73.
My observations
There are a few points to note from this. Clearly, the average yield over this period would have easily exceeded the money an investor would have got if the cash was on a normal savings account. Further, it was greater than the average dividend yield over this period from the FTSE 250.
From the purchase date to now, Taylor Wimpey shares have gained 2.5%. This means that if an investor sold the stock today, they would bank a slight profit from the capital appreciation. Yet this isn’t always the case. One risk with dividend investing is that the share price can fall, wiping out some or all of the income banked from dividends. Over the past year, Taylor Wimpey stock is down 17%.
Weighing up sustainability
Looking ahead, analysts are forecasting for the next dividend to be raised to 4.80p per share. This is due to be declared in early March. This could give investors confidence that the business can keep up the cash payments going forward.
However, Taylor Wimpey did cut the dividend completely during the pandemic. There was significant uncertainty in the housing market, with construction site closures for a period. To preserve cash, management decided to cut the payments to shareholders. This is a company specific risk going forward, as another unexpected event could cause the dividend to be halted.
Even with this, I believe the stock is a reliable dividend payer. It’s a company for income investors to consider.
