There are some brilliant dividend income stocks on the FTSE 250, notably housebuilder Taylor Wimpey (LSE: TW). Today, it offers an eye-catching trailing yield of 11.1%. Is that too good to be true?
Sky-high yields like this one always merit close investigation. They often reflect a volatile stock, and that’s certainly the case here. The Taylor Wimpey share price has plunged 23% in the last month. Trading at around 84p today, it’s under half its value of a full decade ago.
I bought Taylor Wimpey in 2023 and was initially pleased with my decision. At the time, interest rates looked set to fall, which should have lifted the business on two fronts.
Share price crash
Lower rates would cut mortgage costs, lift buyer demand and boost house prices, revenues and profits. At the same time, they’d shrink the yields on risk-free asset classes like cash and bonds, making high-income stocks relatively more appealing. Alas, things haven’t played out as I hoped.
Interest rates stayed higher for longer than I expected, hitting the shares very hard. But I remained optimistic, especially with markets expecting the Bank of England to borrowing costs two or three times this year as inflation fell, potentially cutting base rate to 3% by Christmas. We’re in a very different world today. The Iran war risks pushing up oil prices, inflation and interest rates too. Mortgages rates are already climbing as a result.
Sales, prices and demand
Higher borrowing costs will make buyers think twice, especially if they’re also worried about their jobs, and a resurgent cost-of-living crisis. Taylor Wimpey riskes being squeezed at the other end too, as higher inflation drives up its energy bills and building material costs.
Two inflation-busting hikes to the minimum wage and higher employer National Insurance contributions add to the strain. Taylor Wimpey has also spent hundreds of millions of pounds for cladding remediation, following the Grenfell fire.
Given all the challenges, 2025 results on 5 March looked pretty resilient. Adjusted operating profit slipped only slightly to around £420m. Margins held steady at 10.9%. But the board was warning of a tough 2026 even before the Iran war. Taylor Wimpey isn’t the only housebuilder struggling. Persimmon, Berkeley Group and Barratt Redrow are the three worst performers on the FTSE 100 in the last month, crashing 25%.
Dividend cut fears
Taylor Wimpey does look reasonable value with a forward price-to-earnings ratio of 11.2 that may tempt Stocks and Shares ISA investors today. But given all those challenges, a low P/E doesn’t automatically make it a bargain. So what about that dividend?
The board trimmed payouts by 1.25% in 2024, and by 19.45% in 2025. Another dividend cut this year would surprise nobody. Even so, forecasts still point to a forward yield of 8.7% for 2026, which remains attractive. I’m holding my shares and reinvesting the income, accepting that short-term volatility like this is the price investors pay for the superior long-term returns from equities.
Taylor Wimpey is still worth considering for income-focused investors willing to take a longer-term view. For now, patience is required. Lots of it.
