The decline of the FTSE 100 in recent months means that a number of shares now offer sky-high dividend yields. Among them is house-builder Taylor Wimpey (LSE: TW). Its share price has fallen by 35% in the last year, and this means it now has a dividend yield of almost 12%. That’s exceptionally high and suggests the stock offers a wide margin of safety, as well as a strong income return outlook.
Of course, it’s not the only stock which could offer an impressive income return following recent stock market declines. Reporting on Friday was a dividend growth share which could be worth buying alongside Taylor Wimpey, in my opinion.
The company in question is staffing business SThree (LSE: STHR). It released a trading update which showed that adjusted -re-tax profit for the full year is expected to be slightly ahead of the top end of market forecasts. It has experienced a strong end to the year, with gross profit rising by 12% in the final quarter. It has seen strong growth across its divisions, with 83% of gross profit now generated in international markets.
The company also announced that its CEO will step down in the new year, with a process to appoint a successor now underway. Although this could create a degree of uncertainty in the near term, SThree is expected to record a rise in earnings of 16% in the 2019 financial year. This suggests it has a bright future and may be able to raise dividends at a fast pace, with its current payout covered twice by profit. With a 5.5% dividend yield, the stock could have income investing potential for the long term.
Long-term growth potential
Taylor Wimpey’s 12% dividend is highly unusual for a FTSE 100 share. The company’s payout is expected to be covered 1.4 times by profit in the current year, while its recent updates have suggested it’s on track to deliver on its medium-term growth prospects. Certainly, there’s a slowdown in the South East in terms of demand for new-build properties, but a shortage of supply in a number of regions across the UK could lead to improving financial performance for the business over the long run.
The company has spent a number of years building a considerable land bank and improving its net cash position. In both regards, it seems to have a solid long-term growth outlook. While government policies such as Help-to-Buy and stamp duty relief may not last in the long run, demand for housing is likely to exceed supply for a number of years. Interest rates are expected to remain low, while employment levels are relatively high.
As such, the prospects for Taylor Wimpey may be more positive than the stock market is anticipating. Its stock price could be volatile in the near term, but in the long run it appears to have the potential to generate high total returns.
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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.