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The only thing stopping me from buying Taylor Wimpey (LSE: TW) shares today is that I already hold a whole heap of them.
I’ll admit it, they haven’t done particularly well. But that’s the attraction, because they’re cheap as a result. Every time they dip, I’ve bought more at the lower price. So is this the year they rocket back to form, and make me rich? Let’s see.
The housebuilder has had a rotten five years, its shares falling 35% in that time. Last year they slipped 5%.
Once in the FTSE 100, Taylor Wimpey now resides in the FTSE 250. It’s not alone in struggling, every housebuilder has found the going tough lately.
FTSE 250 dividend star
High property prices have priced many buyers out of the market. The end of the Help to Buy scheme in 2023 made life even harder for them. At the same time, inflation has pushed up mortgage rates as well as the cost of labour and materials.
Taylor Wimpey also had to set aside £435m to sort out cladding and fire safety faults following the Grenfell tragedy. With the average sales price for its UK homes dropping £4,000 to £313,000, it’s been squeezed from every side.
It’s still on course to deliver group operating profits of £424m in full-year 2025, but that was cut from last April’s guidance of £444m. And it’s only a tad more than the £416m it made in 2024.
So was I crazy to buy this stock? I don’t think so. Although with investing, we never know for sure.
The big attraction is that Taylor Wimpey pays one of the most generous dividends on the entire FTSE 100 and FTSE 250, with a staggering trailing yield of 8.75%. After reinvesting them, I’m in profit.
Massive passive income
When dividends get this big, they can be vulnerable to a cut. In fact, that’s exactly what Taylor Wimpey did in 2024, reducing the dividend per share by 1.25%, to 9.46p. The board may deliver another cut in 2025, but provided it’s another small one, I can live with that.
Despite all these challenges I still think there’s a big opportunity here. The shares look good value, with a price-to-earnings ratio of 12.8. Mind you, they’ve looked cheap for some time, without taking off.
That huge cladding compensation figure is now priced in. Hopefully the board won’t have to set aside more money, although I suppose we can’t rule it out.
The Bank of England has cut interest rates six times since April 2024 to 3.75%. Some analysts think they could fall to 3% this year. That would slash mortgage costs, and boost demand. Wages have been picking up too, although growth may slow. Britain needs homes.
Personally, I think Taylor Wimpey shares are a generational bargain. But as I’ve demonstrated, they’re not without risks. Investors should only consider them with a long-term view. Which is exactly what I’m doing. I’m reinvesting every dividend I receive to boost my stake, and hope to benefit when the cycle swings back in its favour. Having written this, I’m tempted to buy even more.
