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I purchased 3,254 Taylor Wimpey (LSE: TW) shares in 2023 at a median entry worth of simply 124p and had excessive hopes for them on the time.
The FTSE 100 housebuilder had a dirt-cheap price-to-earnings (P/E) ratio of round six and a sky-high dividend yield of seven.5%.
I checked the steadiness sheet and it appeared sturdy. With the UK apparently bouncing again post-Covid, I felt bullish concerning the housing market’s prospects.
Since then, it’s been something however clean crusing.
Right this moment, the Taylor Wimpey share worth sits at 117p, down nearly 6%. The price-of-living disaster, rising inflation and hovering mortgage charges have all stretched purchaser affordability. Inflation additionally drove up labour and materials prices, squeezing margins.
Dividends however no progress
April introduced contemporary ache with greater employer’s Nationwide Insurance coverage contributions and an inflation-busting enhance within the minimal wage.
Taylor Wimpey’s full-year 2024 outcomes, printed in February, confirmed the influence. Revenues dipped 3.2% to £3.4bn and working earnings fell 11.5% to £416.2m. The variety of properties accomplished fell barely to 10,593, with the common promoting worth dropping from £370,000 to £356,000. Over 12 months, the inventory is down 15%.
Since then, we’ve have one or two inexperienced shoots.
The corporate referred to as its 2025 begin “strong”, and on 30 April, stated the spring promoting season was going properly. Taylor Wimpey is on the right track to hit forecast revenue steering of £444m, which might mark a wholesome 6.7% enhance on 2024.
Including to the momentum, the Financial institution of England lower rates of interest to 4.25% yesterday. It wasn’t the deep lower some had hoped for, nevertheless it’s one other step in the proper path.
This inventory has compensations
Via all of the ups and downs, Taylor Wimpey has continued paying me a beneficiant revenue. It dishes out dividends twice a yr, in Might and November, and at present it injected £154 into my self-invested private pension (SIPP).
Since November 2023, round 18 months in the past, it’s despatched me £555 in whole. Regardless of the share worth dip, my unique £4,000 stake is now value round £4,400.
Clearly, I’d hoped for extra. However dividend shares have a cushion when share costs are bumpy. Shareholder payouts preserve rolling in – though that’s not assured – even when the share worth struggles.
I’ve reinvested each penny and now personal 428 further shares on prime of my unique 3,245. I now personal 3,682 in whole.
Taylor Wimpey is pricier than it was, buying and selling on a ahead P/E of 14. However the trailing yield is a blockbuster 8.08%, one of many highest on the FTSE 100.
The 16 analysts serving up one-year share worth forecasts have produced a median goal of 145.3p. If right, that’s a rise of greater than 24% from at present. Mixed with that yield, this might give me a complete return of greater than 30% if true.
Dangers stay. Rates of interest could not fall and affordability will stay stretched. If money flows fall, the dividend may come beneath strain. The home constructing sector has underperformed for a decade. It may very well be risky for the following decade. No person is aware of.
However proper now, I consider the dividends will ship. And in some unspecified time in the future, with luck, the share worth will too.
