Down 30% in 3 months, is the Taylor Wimpey share value too low-cost for me to disregard?

Since 19 September, housebuilder Taylor Wimpey (LSE: TW) has seen its share value fall by over 30%.

Why have the shares slumped? One apparent clarification is perhaps that the FTSE 100 firm’s buying and selling has disillusioned buyers. However this hasn’t occurred.

Buying and selling as anticipated

Taylor Wimpey’s current 2024 buying and selling replace confirmed that earnings for final yr needs to be “consistent with earlier steering”. And 2025 appears to have gotten off to an affordable begin too. Taylor Wimpey’s order guide stood at £1,995m on the finish of December, 12.5% larger than the £1,772m reported on the finish of 2023.

The corporate expects to report a rise in completions this yr – though weaker pricing within the South of England does imply that the typical home value within the order guide is 0.5% decrease than final yr.

This is perhaps one cause for the current weak point, however this replace was solely issued on 16 January 2025. It doesn’t clarify final yr’s droop.

Market headwinds?

My guess is that buyers have been hoping the federal government would come with some form of money bung to spice up housing exercise with the autumn Funds. Traders might keep in mind how the Assist to Purchase scheme turbocharged home costs for a number of years. Because it occurs, the one promise we’ve received from the federal government to this point is that it’s going to attempt to unclog the planning system.

One different potential headwind is that rates of interest aren’t falling as quick as anticipated. This has a direct affect on mortgage charges and affordability. That raises the danger of additional stress on home costs.

Is the 8% dividend yield secure?

I feel it is a good instance of the outdated inventory market adage “purchase the hearsay, promote the information”.

Shares in Taylor Wimpey and different housebuilders carried out very nicely forward of October’s Funds. However when the precise information emerged (there wasn’t any), buyers took earnings. This dump has left Taylor Wimpey shares buying and selling barely under their June 2024 guide worth of 125p. That’s a standard signal of worth for a housebuilders.

I’m additionally tempted by the 8% forecast dividend yield. Nevertheless, I’m a bit involved that the forecast payout of 9.4p isn’t absolutely coated by anticipated 2024 earnings of 8.2p.

Taylor Wimpey ended final yr with web money of £565m and will in all probability afford to take care of the dividend. Nevertheless, administration received’t essentially need to do that. It could need to protect money in order that it may broaden its construct fee if market situations enhance.

What’s extra, CEO Jennie Daly already has a get-out-of-jail-free card for a dividend reduce. Her earlier steering on dividends implied that the payout may fall to a minimal of seven.1p per share, if wanted. That may give the inventory a extra regular 6.1% yield.

My verdict

Proper now, I’m on the fence about Taylor Wimpey. I feel there’s an opportunity the inventory’s change into attractively valued. However I don’t really feel it’s positively too low-cost to disregard. I’m additionally barely frightened concerning the security of the dividend.

For these causes, I’m going to attend till the corporate’s outcomes are printed in February earlier than revisiting this case.