Taylor Wimpey (LSE: TW) is now one of the most compelling high‑yield opportunities in the FTSE 100, in my view. The housebuilder offers one of the highest dividend returns in any FTSE index — of 8.7%. By comparison, the FTSE 100’s average yield is 3.2% and the FTSE 250’s is 3.5%.
Crucially, this income profile sits alongside the potential for meaningful capital gains. Specifically, the shares trade at a significant discount to their ‘fair value’. It is in this gap that big, long-term profits can be made, as asset prices tend to converge to their fair value over time.
All of this is powered by exceptional average annual earnings growth forecasts.
So, should I buy more of the stock right now?
Earnings forecasts
Risks to Taylor Wimpey’s earnings growth are sticky inflation and/or a delay in further interest‑rate cuts, which can soften demand.
However, consensus analysts’ forecasts are that the company’s earnings will grow by a stunning 28.9% a year to end-2028.
Recent results go a long way toward supporting that view. Its H1 2025 numbers showed revenue rise 9% year on year, while home completions jumped 11% to 5,264. The company said it would hit 10,400-10,800 UK completions this year, up from 9,972 in 2024.
This guidance was reiterated in its 12 November trading update. Taylor Wimpey also confirmed it expects to deliver an operating profit of around £424m this year, against £416m last year.
Reflecting growth in the share price
A discounted cash flow analysis pinpoints where any firm’s share price should trade, based on cash flow forecasts for the underlying business. These, in turn, factor in consensus analysts’ earnings forecasts.
Another strength of this approach is that it produces ‘clean’ standalone valuations. These are unaffected by any under- or over-valuation across a business sector as a whole.
In Taylor Wimpey’s case, the numbers are striking. They show the shares are an eye-catching 53% undervalued at their current £1.09 price. That’s based on this growth outlook and my calculations. That implies a fair value of £2.32 to me.
How much can I make from here?
My current £20,000 holding could make me £27,589 in dividends after 10 years. This assumes an average 8.7% over the period, although dividend yields can go down as well as up. It also assumes that I reinvest the dividends paid back into the stock. This is known as ‘dividend compounding’ — a similar idea to leaving interest to accrue in a bank account.
On that basis, the dividends could rise to £249,432 after 30 years, which I see as the standard investment cycle. This begins at around 20 years old and ends at about 50 — or some variation thereof.
By that point, the holding would be worth £269,432 (including the initial £20,000). And this would be paying £23,441 in annual dividend income! But of course, as I said, none of that is guaranteed.
My investment view
Taylor Wimpey’s high yield, what I see as its large discount to fair value and strong earnings growth are why I bought the stock initially.
As these factors remain intact and look well supported by recent results, I plan to buy more shares soon.
On the same basis, I believe the stock merits serious consideration from long‑term, income‑focused investors.
