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This high UK dividend inventory yields an eye catching 9.5%. That’s the 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 12 months 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 glad 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 no less than £250m a 12 months.
Steering now factors to a forecast yield of 9.13% in 2025 and 9.3% in 2026. Whereas that’s barely decrease than immediately, it’s nonetheless a superb price of earnings. Buyers who favour high-yield dividend shares will likely 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 greater 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 12 months finally depend. April’s enhance 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 principle drag, however slowing completions additionally damage. The board lower 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 Funds may hit sentiment. Except they’re simply rumours.
Lengthy-term development prospects
Buyers contemplating whether or not to purchase the shares have to do their homework. What I see is an effective firm having a troublesome time. Taylor Wimpey is essentially 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 instantaneous 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. As we speak, it’s just under 100p. So it’s dropped by half in that point. With that type of underperformance, a excessive dividend isn’t sufficient.
For traders who perceive and settle for the dangers, and might stand up to extra short-term turbulence, immediately may provide a superb entry level. I’ve taken a battering however console myself with the thought that my reinvested dividends will decide up extra inventory at immediately’s decreased value.
I believe others may contemplate shopping for at this degree, simply don’t count on a clean journey. If I’m feeling courageous, I would even common down on my place.
