I own Taylor Wimpey (LSE: TW.) shares. So far, they’ve been a bad buy, falling 40% in the last year alone and trading at levels seen a decade ago.
I still think this is a good business, but that hasn’t spared it from a battering. Only one FTSE 100 company, advertising giant WPP, has done worse over the past 12 months. But this isn’t just about one housebuilder. Barratt Redrow and Persimmon also number among the index’s biggest five fallers.
FTSE 100 sector slump
Housebuilders have been under fire for years. The Brexit vote sparked panic, then Covid shut down sites and snarled up supply chains. The expiry of Help to Buy hit demand for new builds. The cost-of-living crisis and inflation in materials have piled on further pressure.
Margins have also been squeezed by labour shortages, higher employer’s national insurance charges, and the 6.7% minimum wage hike in April. Completions have slowed, and higher-for-longer interest rates have dragged investor sentiment down again.
On 30 July, Taylor Wimpey swung to a pre-tax loss of £92.1m in the first half after booking £222m of new fire safety provisions. Yet, it wasn’t all bad news. Group revenues rose 9% to £1.65bn, while completions climbed 11% to 5,264 homes. The board nonetheless cut 2025 profit guidance by £20m to £424m, and trimmed the interim dividend from 4.8p to 4.67p per share.
Even after the cut, the stock still carries the biggest dividend yield on the FTSE 100, at 9.8%. That’s forecast to fall slightly across 2025, but should still be a meaty 9.41%.
Shareholder returns
At today’s share price of 96.7p, an investment of £2,000 would pick up 2,068 Taylor Wimpey shares. If I buy before the shares go ex-dividend on 9 October, that 4.67p interim payout would hand me £96.58 straight away. That’s on top of the £172.28 I’ll get from the 3,689 shares I already own. So, that’s £268.86 passive income overall.
However, it’s not that easy. When a stock goes ex-dividend, the share price tends to fall by the same amount as the shareholder payout, to reflect lost value in the company. Shares can pick up in time, though, while no-one is taking that dividend from me.
With a price-to-earnings ratio of 11.6, I think the Taylor Wimpey looks reasonably priced. Yet there are risks. Inflation and therefore mortgage rates are higher than buyers would like, which will hit demand and prices. More tax hikes loom in the autumn, some of which could strike the property market.
Yet, brokers are more optimistic. Consensus forecasts suggest the shares could hit 135.04p over the next year, an eye-popping rise of 38.57% from today. Throw in the forecast 9.41% yield and the total return projection comes in close to 48%. That looks great on paper, but predictions can never be relied upon. I suspect some of those stock price calls may pre-date the latest sector sell-off.
Risks and rewards
Even so, the income case is compelling, and I plan to top up in September. Others might consider buying Taylor Wimpey too, but only after weighing up the risks.
I’ve been too optimistic on housebuilders before and misjudged the market. This time, I hope the long-term rewards will justify the patience.
