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Taylor Wimpey (LSE: TW) shares offer one of the highest yields on the entire FTSE 100. They’re forecast to yield 8.25% in 2025, rising to 8.49% the following year.
That’s a brilliant rate of dividend income. And it needs to be. Unfortunately, the Taylor Wimpey share price has fallen almost 25% over the last 12 months.
This isn’t a one-off either. A decade ago, the shares were trading around 185p. Today, they’re closer to 115p, which is 38% lower. That’s a dreadful return over 10 years.
Income positive, growth negative
Housebuilders have taken a battering since Brexit, which caused shares to crash by around 40% as investors worried about the economic outlook. The pandemic didn’t help. Stamp duty holidays kept the housing market ticking over, but didn’t help Taylor Wimpey much.
Then came inflation. That pushed mortgage rates higher, making homes even less affordable. It also sent labour and material costs through the roof, squeezing margins.
More recently, the sector took another hit from the government’s National Insurance hike for employers, plus the increase to the National Minimum Wage. These pushed staff costs up again.
With inflation sticky and mortgage rates rising in recent weeks, there’s no sign of any quick recovery.
Profits holding up
One reason Taylor Wimpey’s yield is so high is that the share price has dropped. When prices fall, yields rise. But that’s only part of the story.
Despite the market gloom, Taylor Wimpey remains a resilient business. In its 30 April update, the company said the spring selling season had progressed well and it’s on track to meet full-year targets. The order book was valued at £2.36bn, covering 8,153 homes.
Full-year completions are expected to land between 10,400 and 10,800, with full-year operating profit forecast around £444m.
There are still affordability issues, and the cancellation rate has climbed from 13% to 16%. But chief executive Jennie Daly said demand remained solid and lenders were still committed to the market.
Impressive payout record
Taylor Wimpey’s dividend track record is solid but not without bumps. For example, the 2024 total dividend was cut by 1.25%, from 9.58p per share to 9.46p.
Yet over the last 10 years, the board has increased its total dividend at an average annual compound rate of 19.75%. Which looks pretty impressive to me. Some years were outstanding. In both 2016 and 2017, the board lifted the payout by more than 68%.
Even now, management’s committed to returning around 7.5% of net assets to shareholders annually, with a minimum of £250m paid out in two equal instalments.
Recovery potential
The UK economic outlook’s murky, and there’s no guarantee interest rates will fall soon. If they do though, housebuilders like Taylor Wimpey could recover quickly. The danger is that rates will rise.
Analysts reckon its shares could rebound to 145p in 12 months. That would mark a 27% jump from today. Add in the yield, and total returns could hit 35% if that comes true.
Of the 18 analysts who follow the stock, 11 rate it a Strong Buy. None say Sell, and I’m certainly not planning to sell my shares. Even though they’re down 7%, my dividends have pushed me 5% into profit.
Investors could consider buying today. I’ll keep reinvesting the income until better times return.
