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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 in regards to the housing market’s prospects.
Since then, it’s been something however clean crusing.
Immediately, the Taylor Wimpey share worth sits at 117p, down virtually 6%. The associated fee-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 development
April introduced recent ache with larger employer’s Nationwide Insurance coverage contributions and an inflation-busting improve 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 houses accomplished fell barely to 10,593, with the typical 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 known as its 2025 begin “sturdy”, and on 30 April, mentioned the spring promoting season was going nicely. Taylor Wimpey is on track to hit forecast revenue steering of £444m, which might mark a wholesome 6.7% improve on 2024.
Including to the momentum, the Financial institution of England reduce rates of interest to 4.25% yesterday. It wasn’t the deep reduce some had hoped for, however it’s one other step in the fitting course.
This inventory has compensations
By way of all of the ups and downs, Taylor Wimpey has continued paying me a beneficiant revenue. It dishes out dividends twice a 12 months, in Could and November, and in the present day 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 authentic £4,000 stake is now price round £4,400.
Clearly, I’d hoped for extra. However dividend shares have a cushion when share costs are bumpy. Shareholder payouts hold rolling in – though that’s not assured – even when the share worth struggles.
I’ve reinvested each penny and now personal 428 additional shares on high of my authentic 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 in the present day. Mixed with that yield, this is able to give me a complete return of greater than 30% if true.
Dangers stay. Rates of interest might not fall and affordability will stay stretched. If money flows fall, the dividend might come beneath strain. The home constructing sector has underperformed for a decade. It may very well be risky for the following decade. No one 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.
