Taylor Wimpey (LSE: TW) shares have fallen another 4% in the last week and they’re down almost 25% over the last year. They now trade at less than half the price they were a decade ago. Yet every time they fall, I buy more. They say the definition of madness is doing the same thing repeatedly and expecting a different result. I’m starting to wonder whether I need a sanity check.
I keep coming back to the basics. The FTSE 250 housebuilder remains a profitable company. In 2024 it made £416m and expects profits to hit £424m in 2025, including joint ventures. It’s operating in a country where property is in chronically short supply and politicians are pushing for more homes. The shares also look inexpensive to me, with a price-to-earnings ratio of 11.6.
The income is another big attraction. Last year the trailing yield hit 9.63%, roughly double what I’d get from a competitive savings account or basic bond fund. The board has made repeated promises to reward investors, committing to return around 7.5% of net assets each year, worth around £250m.
FTSE 250 disappointment
I don’t think I’m completely mad. The investment case looks strong in theory, but the practice has been pretty rough. Housebuilders have struggled across the board. Post-Brexit nerves smashed valuations, and the cost-of-living crisis made things worse as mortgage rates surged, building materials became more expensive, supply chains buckled and buyers felt poorer.
The 2024 Budget added to the strain. Employers’ National Insurance contributions went up and the minimum wage rose again, driving up costs and squeezing margins.
On 12 November the board spooked investors again by warning of “soft market conditions” during the second half of the year. Net private sales per outlet averaged 0.63 a week since 30 June, down from 0.71 a year earlier, with prices flat. The order book has weakened too, although the company is sticking to its target of completing 10,400 to 10,800 homes in 2025, excluding joint ventures.
Interest rate pressure
Lower interest rates might help. If the Bank of England trims rates again, mortgage costs should fall and demand revive. That’s not a sure thing while inflation proves stubborn, so a Taylor Wimpey share price rebound next year is far from guaranteed.
Can that yield hold? The board cut the dividend per share by 1.25% to 9.46p per share in 2024 and I wouldn’t be shocked to see another reduction this year. I’m hoping it’s small, because a larger cut would hit the share price hard.
Sector sentiment took another knock on 18 November when builder Crest Nicholson issued a profit warning, citing a subdued housing market and Budget uncertainty. Its shares are down 24% in a week.
Long-term view
Through all this, I’ve continued averaging down. I still think this stock is worth considering for those with a long-term mindset. A recovery should come at some point, but the share price madness may continue for a while. I’m still collecting a decent flow of dividends, and enjoy reinvesting them at today’s lower price.
That said, the FTSE 100 is full of generous dividend payers that haven’t suffered such an insane degree of share price damage. Investors may want to research those as well.
