With the post-pandemic housing market slump, it’s not surprising that shares in the FTSE 250 housebuilder Taylor Wimpey (LSE:TW.) have also slumped in recent years. At around 102p, they’re now (15 December) changing hands for over 45% less than they were in April 2021, when they were at their five-year high.
Despite this, the group’s dividend has been impressive – 8.58p (2021), 9.4p (2022), 9.58p (2023), and 9.46p (2024).
But what are analysts forecasting for the next few years? Let’s take a look.
Seeing into the future
The housebuilder’s current policy is to return around 7.5% of its net assets to shareholders each year, subject to a minimum of £250m, in two equal instalments.
Based on the current number of shares in issue, this means a dividend of at least 7.06p and implies an impressive yield of 6.9%. By comparison, the FTSE 250’s currently offering a return of 3.54%.
But if the company’s to stick to its policy and pay a final dividend for 2025 equal to its interim payout, it’s going to comfortably exceed its minimum. If it does pay 9.34p a share, its forward (2025) yield is 9.3%.
For the next two years, analysts are expecting 9.06p (2026) and 9.23p (2027). Admittedly, these are smaller than the return I’m anticipating this year. Even so, those buying the group’s shares now could achieve a return of close to 9%.
A value trap?
But I think it’s wise to exercise some caution here. If the brokers’ forecasts are right, the group’s dividend per share will be higher than its earnings per share. Ultimately, this isn’t sustainable.
Indeed, there’s an investing rule of thumb that says if a stock’s yielding more than twice the 10-year gilt rate, then it’s probably too good to be true. However, there are no hard and fast rules here.
Even so, I think the stock’s worth considering. For example, if the payout was, say, 25% lower than these forecasts, the yield would still be around 6.5%. This beats anything on offer from high street banks.
And if the housing market can recover — and Taylor Wimpey’s able to return to a level of completions it achieved before Covid-19 arrived – there could be some capital growth too.
Of course, a bit like the company’s dividend, there can be no guarantees the market will pick up. Last week’s GDP figures showed an unexpected contraction. Also, inflation means the group’s profit per house is much lower than it was a few years ago.
Final thoughts
Despite this, the group retains a strong balance sheet with very little debt. It also has a landbank of 75,000 plots on which to build and a “strategic pipeline” of 135,000 more. In addition, its order book’s worth over £2bn.
These factors should ensure its earnings are sufficient to support an above-average dividend payment. And some capital growth could be the icing on the cake for investors.
But Taylor Wimpey’s just one opportunity I’ve got my eye on.
