I’ve been scouring the FTSE to find the best value stock I can, and was surprised to discover I already hold it.
Although, maybe not that surprised. I’ve made a habit of buying top FTSE 100 and FTSE 250 companies that have had a poor recent run and look like bargains as a result.
One way to judge whether a company offers good value is to check its price-to-earnings ratio. If it’s below 15, I’m interested.
This stock ticks that box, even if it’s not dirt cheap, with a P/E of just over 12. There are cheaper shares in my portfolio, such as troubled trainer retailer JD Sports Fashion, which has a P/E of around 7.7. But this company absolutely smashes it on my second value metric, the dividend yield.
Taylor Wimpey shares look good to me
The company in question is Taylor Wimpey (LSE: TW.), and it currently yields a magnificent 9.1%. Over the past decade, it’s increased the dividend at a compound annual growth rate of 17.82%, which is remarkable. Lately though, dividend growth has slowed, as my table shows.
| 2020 | 2021 | 2022 | 2023 | 2024 | |
| Dividend per share | 4.14p | 8.58p | 9.40p | 9.58p | 9.46p |
| Growth | 7.81% | 107.25% | 9.56% | 1.91% | -1.25% |
In 2021, the payout more than doubled, but it edged up just 1.91% in 2023 and was cut by 1.25% last year. That’s not ideal, but it’s understandable. Shareholders are being handsomely rewarded already, and a bigger increase would risk overstretching the business. The company aims to share roughly 7.5% of its capital value with investors each year, but no dividend is guaranteed.
The slowdown reflects tough trading conditions. Housebuilders have faced rising interest rates, higher construction costs, and stretched affordability. That’s not going to change quickly.
Building through the cycle
Taylor Wimpey’s latest results, published on 1 October, were solid enough. The board expects 10,400 to 10,800 completions this year and an operating profit of £424m, slightly up from £416.2m in 2024. Its total order book was flat at £2.12bn.
At today’s price of 104.6p, the stock trades at roughly half the level it did a decade ago. It’s fallen 33% in the past year, plunging into the FTSE 250 as a result.
Lower interest rates would help the housing market recover. Falling interest rates could make high-yield dividend stocks look more attractive again compared with cash and bonds. That said, with the Bank of England nervous about inflation, interest rate cuts may take time.
FTSE 250 stock to watch
Consensus forecasts suggest the shares could rise a massive 30% in the next year, which would be great if it happens. The forecast yield is 8.8%, which would lift the total return towards 40%.
With a 9% yield, modest P/E of 12, and signs that sentiment might be improving, I think Taylor Wimpey is worth considering for long-term investors. If markets fall, as some reckon, it might look even better value.
The FTSE 100 has broken a string of record highs lately but there’s plenty of value for investors willing to look. I know I’ll keep hunting for bargains. And if markets crash as some predict, then I will consider filling my boots.
