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This high UK dividend inventory yields an eye catching 9.5%. That’s the very best on the FTSE 100. Nevertheless it has issues too. The corporate in query is housebuilder Taylor Wimpey (LSE: TW) and its shares have plunged 40% in a yr to commerce at a 52-week low. With a price-to-earnings ratio of simply 11.9 it seems to be priced to go. However watch out.
Taylor Wimpey shares are struggling
I purchased the inventory in 2023 with a long-term view, and I’m joyful to carry on all through the ups and downs. I’ve the compensation of dividends, even when I’m down general. The board lately trimmed the interim fee from 4.8p to 4.67p, however the general dedication to shareholders seems to be stable. It’s nonetheless promising to return round 7.5% of web belongings yearly, equating to a minimum of £250m a yr.
Steerage now factors to a forecast yield of 9.13% in 2025 and 9.3% in 2026. Whereas that’s barely decrease than as we speak, it’s nonetheless an excellent price of revenue. Traders who favour high-yield dividend shares shall be tempted. They need to even be cautious.
Pressures stay
Inflation got here in at 3.8% in July and will tick as much as 4% in September. That may preserve mortgages larger than we’d like, hitting purchaser affordability and demand. Sticky inflation additionally raises Taylor Wimpey’s prices, whereas wages have additionally been climbing quicker than costs, up 4.6% a yr ultimately rely. April’s improve to employers’ Nationwide Insurance coverage and the minimal wage have additional squeezed margins.
Final month’s outcomes (30 July) revealed a £92.1m first-half loss. A £222m cladding provision was the primary drag, however slowing completions additionally harm. The board minimize annual revenue steering by £20m consequently.
The group nonetheless expects to complete between 10,400 and 10,800 UK houses in 2025, a muted outlook given the federal government’s pledge to construct 1.5m houses this parliament.
Tax coverage may add to the ache. Rumours of recent levies on higher-value properties within the Price range may hit sentiment. Until they’re simply rumours.
Lengthy-term development prospects
Traders contemplating whether or not to purchase the shares must do their homework. What I see is an efficient firm having a troublesome time. Taylor Wimpey is basically on the mercy of occasions past its management. Rates of interest must fall, inflation ease and confidence return earlier than housing demand strengthens. That would take time, however a yield of greater than 9% pays handsomely whereas ready.
We are able to’t count on an on the spot restoration. Housebuilders have struggled ever since they slumped within the aftermath of the 2016 Brexit vote. Ten years in the past, the Taylor Wimpey share value hovered round 200p. Right this moment, it’s slightly below 100p. So it’s dropped by half in that point. With that form of underperformance, a excessive dividend isn’t sufficient.
For traders who perceive and settle for the dangers, and may stand up to extra short-term turbulence, as we speak may provide an excellent entry level. I’ve taken a battering however console myself with the thought that my reinvested dividends will decide up extra inventory at as we speak’s lowered value.
I feel others may think about shopping for at this stage, simply don’t count on a clean trip. If I’m feeling courageous, I’d even common down on my place.
