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In contrast to the FTSE 100 as a whole, Taylor Wimpey (LSE: TW) shares have been in poor form in 2025 so far. The stock is down again today (27 February) following the latest set of full-year numbers from the High-Wycombe-based business.
Big drop in profit
Revenue dipped just over 3% to £3.4bn. On it’s own, that doesn’t sound too bad. However, pre-tax profit tanked over 32% in 2024 to £320m.
Why such a fall? Well, concerns about affordability as a result of inflation rebounding certainly haven’t helped. Having dropped to the Bank of England’s target of 2% back in May 2024, we’ve since returned to 3%. Clearly, this is still a lot better than the 11.1% set in October 2022. But it has pushed Governor Andrew Bailey and co to push back their forecast of returning to 2% by six months.
A consequence of this is that interest rate cuts are likely be slower going forward, hitting demand for homes built by the £4bn cap.
Of course, none of the above is a surprise to the market and this goes some way to explaining why the shares were trading only slightly lower this morning rather than crashing in value. Moreover, there were a few, more positive things for investors to digest.
Strong order book
Despite the big drop in profit, CEO Jennie Daly was (understandably) keen to put a positive spin on things. She reflected that the start of the spring selling season had been “robust“. An order book of £2.26bn — up on the £1.95bn last year — was also highlighted.
As thing stand, Taylor Wimpey expects to meet market estimates on operating profit of £444m in 2025. Whether that happens is another thing entirely. As an aside, it’s worth noting that temporary tax breaks (such as for first-time buyers) will go at the end of March and that higher taxes for businesses will kick in only a few days later.
Huge dividend yield
Naturally, no one truly knows where the share price will be next week, next month or next year. So, what do we know?
Well, Taylor Wimpey stock currently changes hands for just under 13 times forecast earnings for 2025. That’s fairly average for the UK market as a whole. It’s also on par with other big property players such as Persimmon and Barratt Redrow. So, we’re not talking a ludicrous valuation here.
Another attraction is the yield. Although dividends are never guaranteed, the former currently stands at a monster 8.4%. For perspective, the FTSE 100 as a whole yields ‘just’ 3.5%.
The question is whether this income stream is worth the risk involved, especially as the payout isn’t predicted to be covered by profit. Should things not improve soon, the company may need to begin cutting its distributions.
Patience required
If we assume that a lot of negativity has already been factored in by the market, I reckon considering the shares today could deliver a great return in time.
But that last bit is key. While the ongoing undersupply of quality housing in the UK should mean that big housebuilders like Taylor Wimpey recover in time (and then some), this is probably not one to consider for those hoping for a quick return.
