With an increasing population and an acute housing shortage, you might think Taylor Wimpey (LSE: TW.) shares would be surging at the moment. The reality for the homebuilder is anything but. The share price is down 40% in the last 18 months. A high-single-digit dividend seems paltry when a £7,500 stake would have turned into approximately £4,478 over the period.
Is there an opportunity in the current crisis though? Housebuilders aren’t going anywhere, after all. They may even be seen as a safer bet than other companies under threat of advances in AI. So, could a 36% discount look like a brilliant bargain when the housing sector turns it all around?
No scope
To answer whether this is a golden opportunity to pick up some cheap shares, we should first take a look at what has caused the current mess.
On 5 March, Taylor Wimpey announced full-year results for 2025. Revenue for the year rose 12%, which sounds pretty good – until you see that profits were down at the same time.
The reason? Inflation in the cost of building houses — mainly materials — played a large role. Slow house price growth and the costs of cladding fire safety provision didn’t help either.
This caps off what has been a trend in housebuilding over the last few years – squeezed margins. Whether it’s cladding-related costs, increasing taxes on wages, or materials rising in price, it’s getting more expensive to build houses. At the same time, a cost-of-living crisis combined with higher interest rates means there’s little scope to raise prices either.
Do we expect this to change soon? In the short term, it’s hard to be optimistic. As well as being tragic, the conflict in Iran will push prices up if it persists. Inflation in energy is one thing to think about, but the destructive nature of war pushes up costs of insurance, shipping and is a general malign influence up and down the supply chain.
High yield
One bright spot amid the gloom is the Taylor Wimpey dividend. The dividend yield currently stands at 8.95%, one of the highest yields available anywhere on the planet. This kind of steady stream of cash acts as a kind of ‘floor’ on the share price as well as being cash in the bank for investors – so long as it can continue to be paid.
The yield is not under immediate threat. The dividend is covered by earnings and Taylor Wimpey has a strong asset base and low debt. Uniquely among housebuilders, the dividend is linked to the size of the assets, which is one reason the yield is so high. Although there has been a recent pivot towards using some of that cash for share buybacks instead.
On the whole? Housebuilders have had a tough time of late, but it’s hard not to see a turnaround sooner or later. With its bumper dividend, I think Taylor Wimpey could be an interesting stock to consider buying if it does.
