Following a fall of 16% in the last year, many investors may be tempted by the Taylor Wimpey (LSE: TW) share price. After all, the house-builder has a relatively low valuation and a high yield. However, the prospects for the UK economy and for the housing market appear to be uncertain. Brexit could add further pressure to the company’s share price in the near term.
Looking further ahead, though, the company could generate high returns due to government policy, as well as the nature of the UK housing market. Alongside an income stock that reported positive news on Friday, now could be the perfect time to buy Taylor Wimpey for the long run.
The company reporting on Friday was real estate investment trust Secure Income REIT (LSE: SIR). It released interim results which highlighted its resilient dividend potential. Its like-for-like portfolio valuation increased by 2.8% over the six-month period, while it was able to reduce its net loan to value to 44.4%. This is down from 29.6% at the end of 2017 and may provide the company with a more robust balance sheet over the medium term.
During the period, the company was able to complete the £436m acquisition of two off-market properties. They provide an initial property yield of 5.2% secured on assets in defensive sectors let to good covenants with inflation or fixed uplifts. As such, they may catalyse the company’s financial performance.
With Secure Income REIT having a dividend yield of 3.9%, it seems to offer an impressive income return. The stock also appears to have an attractive valuation and could therefore deliver high total returns in a stable fashion over the long run.
The outlook for the Taylor Wimpey share price over the long run may also be impressive. The company has been able to build a significant economic moat in recent years. It now has a large landbank as well as a substantial net cash position. Both of these factors could mean that the company enjoys barriers to entry, as well as the capacity to withstand slower-growth periods for the UK housing market.
Although in the short run there could be pressure on house prices, demand for new-build homes is set to remain high. First-time buyers require only a 5% deposit as a result of the Help to Buy scheme, while low interest rates make housing even more affordable.
Due to this, the financial outlook for Taylor Wimpey seems to be upbeat. The company is forecast to post a rise in earnings of 4% in each of the next two financial years. With a price-to-earnings (P/E) ratio of 9 and a dividend yield that is expected to reach over 10% next year, the total return potential of the stock seems to be impressive. It could prove to be one of the best buys in the FTSE 100 at the present time.
Peter Stephens owns shares of Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.