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I think this unloved 10%-yielding FTSE 100 dividend stock could explode in 2019

The bumper dividends paid by leading housebuilders were not been enough to stop their share prices falling last year. Unfortunately, share price losses have outweighed the cash paid out by most firms.

FTSE 100 builder Taylor Wimpey (LSE: TW) is a good example. A forecast dividend yield of 10.5% for 2018 is great news, but the shares have fallen by 17% over the last 12 months. So shareholders are still looking at an annual loss.

Anyone who owns shares in housebuilders has probably been wondering what to do. Should you cut your losses and sell ahead of Brexit, or hold on and hope sentiment improves?

Signs of hope

I think it’s fair to say that a lot of last year’s UK market sell-off was driven by politics, rather than poor company performance. As we head towards some kind of Brexit decision, sentiment seems to be improving.

Taylor Wimpey’s share price has risen by 8% so far this year and seems to be gaining momentum, following an upbeat trading statement last week. The company says that 2018 results will be in line with expectations, and that its order book remains strong.

My personal view is that a chaotic no-deal Brexit is unlikely. If I’m right, then investor appetite for UK-focused firms like Taylor Wimpey could improve sharply this year.

Don’t forget the cash pile

The group’s continued growth is still backed by a very strong balance sheet. Year-end net cash was £644m, despite the firm paying out £500m to shareholders last year.

Management has confirmed plans to return a further £600m to shareholders during 2019. Analysts’ forecasts indicate that this should give a dividend of 18.1p per share. That’s a dividend yield of 11.6% at the last-seen price of 156p. I think the shares are worth buying at this level.

An unfair discount

My next company is insurance and savings group Legal & General Group (LSE: LGEN). This FTSE 100 income stalwart offers a slightly lower dividend yield, at 6.8%. Of course, this is still very high for a profitable and healthy business.

Like Taylor Wimpey, Legal & General has been marked down over the last year to reflect Brexit nerves. In my view, this is probably unfair. Although earnings did fall by 8% to 13p per share during the first half of last year, this was for complex accounting reasons. The drop didn’t reflect the firm’s cash performance, which was demonstrated by a 5% rise in operating profit to £909m.

The firm’s first-half wobble didn’t affect its financial strength either. Legal & General’s Solvency II coverage ratio rose from 189% to 193% during the half year, to reflect an increase in surplus capital.

Buy-and-forget income

Analysts expect Legal & General’s full-year earnings to recover from first-half weakness, and rise by 13% to 29.9p per share. This puts the shares on a forecast price/earnings ratio of 8.1, which seems attractive to me. The dividend is expected to rise by 6.8% to 16.4p per share, giving a prospective yield of 6.8%.

This £14bn company has now been in business for more than 130 years. I’m confident it will survive any short-term disruption caused by Brexit and continue to prosper. I rate the shares as a dividend buy.

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Roland Head has no position in any of the shares mentioned. 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.