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Taylor Wimpey (LSE: TW) shares are hard to ignore given the hefty dividends on offer. Unfortunately, what investors have received in income, they’ve sacrificed in growth.
Hard times drive yields higher
The Taylor Wimpey share price is down around 23% in the past year, and now trades at roughly half the level it did a decade ago. This dismal run has knocked it out of the FTSE 100 and into the FTSE 250. Yet, I don’t really blame the management. The house building sector has performed poorly across the board.
Builders have struggled ever since the Brexit vote in 2016. The cost-of-living crisis, higher interest rates, the end of the Help to Buy scheme in 2023, worsening property affordability for younger buyers, and post-pandemic supply-chain headaches have created a perfect storm.
Today (12 November), Taylor Wimpey reported that weekly average private sales per site fell 11% to 0.63 in the key autumn period, down from 0.71 a year earlier. Its order book stood at 7,253 homes (excluding joint ventures), down from 7,771 last year. The board expects underlying house prices to stay “broadly flat”.
Can that income be trusted?
It’s all a bit underwhelming but Taylor Wimpey does offer one mighty compensation, in the shape of its trailing yield of 9.26%. That’s a blistering rate of income, one of the best on the entire FTSE. Let’s say an income-focused investor put their entire £20,000 Stocks and Shares ISA allowance into this one company. They could look forward to £1,852 of annual dividend income, which is pretty nifty.
This is only something an experienced investor should consider, though. Those with smaller portfolios should spread the money around for the sake of diversification. And even our experienced investor should tread carefully, because once yields hit dizzying levels, they can be at risk.
Taylor Wimpey actually cut its total shareholder payout in 2024, although only by 1.25%. The forecast yield is lower at 8.7%, with cover thin at just 0.7. So there’s a chance it could be cut again.
The Budget on 26 November is causing concern, amid rumours that the government will introduce a new property tax on higher priced homes, which could hit sales and prices.
FTSE 250 dividend superstar
The housing market has gone quiet as we all wait. However, once the Budget is done and dusted, the outlook could brighten. Markets think there’s a fair chance the Bank of England will cut interest rates to 3.75% at its next meeting on 18 December, with a couple more cuts likely in early 2026, driving down mortgage rates.
If that happens, it should lift both demand for property and prices, boosting margins. Lower interest rates would also shrink the yields on rival risk-free asset classes like cash and bonds, making high-yield stocks look even juicier. Falling inflation may also ease the pressure from rising wage and material costs.
I’ve bought Taylor Wimpey on five occasions in the last couple of years, and while my shares are down I’m just about ahead with dividends reinvested.
Today’s results were mildly disappointing but hardly a game-changer. Taylor Wimpey shares look good value at a price-to-earnings ratio of just 12.6. I think they’re worth considering today for investors with time and patience on their side.
