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I had a shock this morning after I checked my SIPP and noticed the Taylor Wimpey (LSE: TW) share value had fallen by 4.7%. It wasn’t outcomes day for the FTSE 100 housebuilder however then I remembered, it had gone ex-dividend.
When firms pay a dividend, the share value usually drops to replicate the money leaving the enterprise. With a inventory like this, providing one of many highest trailing dividend yields on the FTSE 100 at 9.43%, the affect may be notable.
A sky-high yield like this one is vastly tempting, but it surely will also be a warning signal. Yields robotically rise when the share value falls, so it may be an indication of an organization in hassle and traders have to tread rigorously. Taylor Wimpey shares have fallen by 35% within the final 12 months. And at simply over 100p at the moment, they’re roughly half the 200p they traded at 10 years in the past.
The housebuilding sector has struggled since crashing round 40% after the Brexit vote in 2016. Rising rates of interest, the cost-of-living disaster, increased development prices and stretched affordability have all weighed on development companies.
Strong, if cautious, outcomes
Taylor Wimpey’s newest outcomes, revealed on 1 October, confirmed the board expects 10,400 to 10,800 UK completions this 12 months and an working revenue of £424m, barely up from £416.2m in 2024. The entire order e-book was flat at £2.12bn, with 73% of the 7,223 deliberate properties now exchanged.
What Taylor Wimpey actually wants is decrease rates of interest to revive the broader economic system and produce patrons again. There’s a possible secondary profit. Falling charges also needs to make high-yield dividend shares look extra engaging in contrast with money and bonds. Let’s not get too excited although, the Financial institution of England remains to be involved about inflation, and gained’t be in a rush handy out additional rate of interest cuts.
With a price-to-earnings ratio of 12.5, the inventory seems good worth to me. A lot in order that I truly topped up my stake a couple of weeks in the past, to take benefit. Which suggests I’ll get much more revenue when the dividend cost hits my SIPP on 14 November.
Analyst optimism
Consensus analyst forecasts produce a median 12-month goal of 132.5p, which suggests a possible 31.5% capital acquire over the following 12 months. Mixed with the dividend, complete returns might high 40%. I’d be a made man if that occurred however I’m not getting carried away. It appears optimistic for such a brief interval.
That mentioned, I nonetheless assume the shares are properly price contemplating for long-term traders keen to journey by some short-term volatility. If wider financial circumstances enhance, there may very well be real progress forward. However that seems like a fairly large ‘if’ proper now.
Taylor Wimpey combines super-high revenue with patchy capital progress. However in some unspecified time in the future, I believe the expansion is more likely to come. The issue, as ever, is that we don’t know when. Current historical past suggests traders might must be affected person, however a minimum of they will maintain reinvesting these dividends to make the most of at the moment’s downbeat share value. That’s my technique, anyway.
