I bought 3,254 Taylor Wimpey (LSE: TW) shares in 2023 at an average entry price of just 124p and had high hopes for them at the time.
The FTSE 100 housebuilder had a dirt-cheap price-to-earnings (P/E) ratio of around six and a sky-high dividend yield of 7.5%.
I checked the balance sheet and it looked strong. With the UK apparently bouncing back post-Covid, I felt bullish about the housing market’s prospects.
Since then, it’s been anything but smooth sailing.
Today, the Taylor Wimpey share price sits at 117p, down almost 6%. The cost-of-living crisis, rising inflation and soaring mortgage rates have all stretched buyer affordability. Inflation also drove up labour and material costs, squeezing margins.
Dividends but no growth
April brought fresh pain with higher employer’s National Insurance contributions and an inflation-busting increase in the minimum wage.
Taylor Wimpey’s full-year 2024 results, published in February, showed the impact. Revenues dipped 3.2% to £3.4bn and operating profits fell 11.5% to £416.2m. The number of homes completed fell slightly to 10,593, with the average selling price dropping from £370,000 to £356,000. Over 12 months, the stock is down 15%.
Since then, we’ve have one or two green shoots.
The company called its 2025 start “robust”, and on 30 April, said the spring selling season was going well. Taylor Wimpey is on course to hit forecast profit guidance of £444m, which would mark a healthy 6.7% increase on 2024.
Adding to the momentum, the Bank of England cut interest rates to 4.25% yesterday. It wasn’t the deep cut some had hoped for, but it’s another step in the right direction.
This stock has compensations
Through all the ups and downs, Taylor Wimpey has continued paying me a generous income. It dishes out dividends twice a year, in May and November, and today it injected £154 into my self-invested personal pension (SIPP).
Since November 2023, around 18 months ago, it’s sent me £555 in total. Despite the share price dip, my original £4,000 stake is now worth around £4,400.
Obviously, I’d hoped for more. But dividend shares have a cushion when share prices are bumpy. Shareholder payouts keep rolling in – although that’s not guaranteed – even when the share price struggles.
I’ve reinvested every penny and now own 428 extra shares on top of my original 3,245. I now own 3,682 in total.
Taylor Wimpey is pricier than it was, trading on a forward P/E of 14. But the trailing yield is a blockbuster 8.08%, one of the highest on the FTSE 100.
The 16 analysts serving up one-year share price forecasts have produced a median target of 145.3p. If correct, that’s an increase of more than 24% from today. Combined with that yield, this would give me a total return of more than 30% if true.
Risks remain. Interest rates may not fall and affordability will remain stretched. If cash flows fall, the dividend could come under pressure. The house building sector has underperformed for a decade. It could be volatile for the next decade. Nobody knows.
But right now, I believe the dividends will deliver. And at some point, with luck, the share price will too.
