The Taylor Wimpey (LSE: TW.) share price is turning into a test of my mettle as a value investor.
The housebuilder’s stock has had a rotten run. If this was a new-build home, the buyer would be entitled to compensation. There’s no compensation when share prices tumble, and nor should there be. The rewards for investors are already generous, provided they’re prepared to sit through the cyclical up and downs.
Sadly, it’s been more down than up for Taylor Wimpey. The shares have plunged 28% in the last year. At today’s price of around 104.65p, they’re roughly half what they were a decade ago. That’s a shocking performance.
Struggling value stock
There is one juicy consolation though. The group has paid out a heap of dividends. Long-term holders who’ve reinvested those payouts may still be ahead, or at least seen their losses softened. That’s how value investing works, in theory. Investors get gloomy, share prices fall well below their true worth, the yield climbs, and those willing to wait eventually reap the rewards. Now I’m hoping theory will pan out in practice.
Taylor Wimpey reiterated its guidance for 2025 in last month’s update (1 October), describing third-quarter trading as “robust”. It expects between 10,400 and 10,800 UK completions this year and is targeting an operating profit of £424m, slightly above last year’s £416.2m. That’s despite a one-off £20m charge linked to past defects. The total order book value was steady at £2.12bn.
Hardly thrilling progress, but it shows a degree of resilience in tough times.
Ultimate dividend king
Investors remain wary of housebuilders, and with good reason. The UK economy is sluggish and the Bank of England is too wary of inflation to slash interest rates much lower. Higher borrowing costs mean more expensive mortgages and weaker demand for homes.
At some point this will turn, but it could take time. I’m content to wait. Taylor Wimpey’s dividend yield is a staggering 9%, and by reinvesting those payouts I’m effectively buying more shares on the cheap. That’s the silver lining of a falling share price.
Markets have priced in a lot of bad news for the sector, and there must be a limit. When Barratt Redrow issued a cautious update this morning (5 November), its shares actually rose. Chris Beauchamp, market analyst at fund platform IG, said the calm response suggests investors may finally be prepared “to give the sector the benefit of the doubt for now”.
Bargain buy potential
I’m certainly doing that. With a modest price-to-earnings ratio of around 12.5 and that bumper yield, Taylor Wimpey looks tempting for those willing to think long term, as all investors should.
I’ve bought the stock five times since mid-2023, most recently on 5 September. It’s now slipped into the FTSE 250, but that doesn’t bother me. I’m buying for income and recovery potential, not short-term glory. One day, I believe the capital growth will come too, ans those twice-yearly dividends will keep me more than happy even if the board trims the dividend slightly. For now, I’ll keep building my stake brick by brick. If we get a stock market crash and it collapses again, I’ll seize the moment and buy more.
