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Taylor Wimpey‘s (LSE: TW) a brilliant dividend stock, but the shares have taken a beating. Does the ultra-high income it pays compensate?
The housebuilding sector’s had a turbulent decade, dogged by Brexit, rising interest and mortgage rates, affordability issues and the end of the Help to Buy scheme. This has hammered the Taylor Wimpey share price, which has fallen 1.5% over 12 months and 25% over five years. Today, it trades near a 10-year low.
I bought the stock three times in autumn 2023, and twice more in January, taking advantage of the volatility. Despite its travails, I’m actually up 10%. Why? Because Taylor Wimpey has a humungous trailing dividend yield of 8.2%.
FTSE 250 income star
I’ve received six dividends so far and the next lands in my Self-Invested Personal Pension (SIPP) on 9 May. I’m willing to wait for the shares to recover because of the fantastic rate of income I’m getting. By reinvesting every penny I, pick up more Taylor Wimpey shares at today’s beaten-down price.
In total, I now hold 7,636 shares. In 2026, analysts expect Taylor Wimpey to pay a full-year dividend of 9.06p. That will give me a bumper £692 of income, which will lift my stake closer to £9,500. Any share price growth will be on top of that.
One concern is that the board cut the 2024 dividend per share by 1.25%. Another small cut is likely for full-year 2025, given that group operating profits edged up only slightly, from around £416m to £420m. Taylor Wimpey said the housing market remains challenging, with muted demand. However, I’m hoping that will change as interest rates fall, making mortgages cheaper.
So why am I so optimistic? Looking ahead, I’m just over 10 years from retirement. If that 8.2% yield grows at a modest 2% annually, my £9,500 stake could be worth £19,893 after a decade. That’s just from reinvested dividend income. If the share price also grows, say, at a steady average rate of 7% a year, the total value could hit £38,865.
Power of compounding returns
Let’s say the yield has retreated to 6% by then. Taylor Wimpey would then produce around £2,332 a year in dividends, which I could draw as income without touching my capital.
Naturally, these are all projections and may not come true. Taylor Wimpey shares could continue to struggle. The UK has a housing shortage, building takes time, unemployment’s rising and government efforts to boost supply could hit prices and profits. There are lots of risks.
But the shares look reasonable value with a price-to-earnings ratio of about 13.7, and there are signs of a recovery, with the price jumping 5% in the last week. Of course, this could be another false dawn.
But I still think these figures show how dividend stocks are a potentially brilliant way to build long-term wealth. The key is to spread risk across a balanced portfolio of companies, so that if one struggles, others will hopefully compensate. I expect my retirement to be a lot more comfortable as a result.
