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Last Wednesday (24 October), I bought Taylor Wimpey (LSE: TW) shares. There’s nothing unusual about that. I bought the FTSE 250 housebuilder again on 5 September.
I bought the shares twice in September 2023 as well, and twice more that November. By automatically reinvesting all of my dividends, I’ve acquired its shares on another four occasions, and have no plans to stop.
Massive dividend income
It might seem a strange obsession, because the share price has had a rotten run. It’s down almost 30% over the past year. At today’s price of 110p, it’s roughly half the 200p or so it traded at a decade ago. So I’m buying what looks like a serial loser. What am I thinking?
Dividends are part of the temptation. The current trailing dividend yield of 8.56% is extraordinary. On the FTSE 100, only Legal & General Group yields more.
Taylor Wimpey used to be on the FTSE 100, but was relegated due to its share price struggles. Of course, a key reason the yield is so high is that the share price has done so poorly. Investors should always be wary of buying ultra-high-yielding stocks for this reason. Shareholder payouts may not prove sustainable
The board did cut the dividend slightly in 2024, from 9.58p to 9.46p, and is likely to trim it again in 2025. But the income still looks attractive. Analysts expect it to edge up to 8.38% in 2026.
Robust sales but soft market
Housebuilders have had a tough decade. Brexit dented sentiment, high prices have squeezed affordability, inflation pushed building costs higher, and last year’s Budget increase to employer’s NI and the 6.7% minimum wage hike drove up costs too. And I haven’t mentioned the cladding scandal. Taylor Wimpey’s total remediation bill was a massive £435m.
On 1 October, the board reported “robust” Q3 sales and said it’s on track to hit its target operating profit of £424m. But it also worried investors by warning of “soft market conditions”.
Taylor Wimpey shares aren’t dirt cheap, despite their troubles, but they do look good value with a price-to-earnings ratio of around 13, below the 15 often considered fair value. And there are signs of lift-off. The share price has gained 11% in the past month. A few Bank of England interest rate cuts would cut mortgage costs and give it a further boost, if we get them.
I can afford to be patient. A period of muted share price growth isn’t an issue. It means I pick up more shares when I reinvest my dividends, or throw fresh money at the stock.
Brokers remain optimistic
I’m not the only optimist. Seventeen analysts covering Taylor Wimpey have a median one-year share price target of 133p. That’s growth of more than 20% from here. Add the dividend, and the total return could be around 30%.
There are no guarantees, of course, but Taylor Wimpey shares look well worth considering for anyone looking at a mix of income and growth. It’s important to take a long-term view, and understand the risks. Personally, I’m tempted to buy more.