Searching for the best FTSE 100 dividend shares to buy? I think Taylor Wimpey (LSE:TW.) shares deserve serious consideration. Here’s why.
Huge yield
First of all, let’s look at its enormous dividend yield. Shareholder payouts fell fractionally last year as new build sales dipped. But a steady market recovery means dividends are tipped to start marching higher from 2025, resulting in some truly staggering yields.
Indeed, at 7.9%, Taylor Wimpey currently has the largest forward dividend yield among the Footsie’s housebuilders. This figure also trumps the index average of 3.5% by a huge margin.
And for next year, the company’s yield marches to an even-more impressive 8.1%.
While market conditions remain uncertain, the FTSE firm has a cash-rich balance sheet it can call upon to support predicted dividends. Net cash fell in 2024 but was still a hefty £565m as of December.
Dividend cover
But Taylor Wimpey’s dividend picture isn’t perfect. This is because dividend cover — which is 1 and 1.2 times for 2025 and 2026, respectively — leaves little margin for error if earnings get blown off course.
Both figures fall below the accepted safety benchmark of two times and above.
Risks to the new build market remain higher than usual as Britain’s economy struggles for growth. On top of this, Stamp Duty changes last month that require first-time buyers to pay more tax is another challenge.
Yet continued resilience in housing demand despite these problems is a positive omen for the sector. Latest Nationwide data showed average house price growth at 3.2% in April, up from 2.9% the month before.
Strong conditions
With the Bank of England steadily trimming interest rates, I’m confident that sales conditions could continue improving for Taylor Wimpey. The builder’s latest financials (30 April) showed its net weekly private sales rate at 0.77 between 1 January and 27 April, up from 0.74 in the same 2024 period.
Growth in the total order book was even more impressive, to £2.3bn from £2.1bn. This comprised 8,153 homes versus 7,742 homes the year before.
A flow of interest rate cuts since summer 2024 have underpinned the recent housing market recovery. The BoE’s benchmark is now at two-year lows of 4.5% after a fresh cut last week, and some analysts think they’ll fall to 3.75% by the end of the year as inflation moderates.
Encouragingly, the central bank also cut its full-year inflation projections, which theoretically leaves extra scope for such swingeing cuts. Policy makers now expect consumer price inflation (CPI) to peak at 3.7% in 2025 — down from a prior estimate of 3.5% — with inflation expected to fall to the BoE’s 2% target thereafter.
Should investors buy Taylor Wimpey shares?
While they’re not without risk, I think Taylor Wimpey shares are worth serious consideration today. Not only is the FTSE firm tipped to deliver a large near-term passive income as market conditions recover. I’m confident it can deliver a flow of market-beating dividends over the long haul as rapid population growth drives demand for new homes.
