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Lloyds (LSE: LLOY) shares have flown since I bought them in 2023. They’re up 46% in 12 months and 93% over two years. With reinvested dividends, my holding has more than doubled in value, and I’m in no rush to sell.
The same can’t be said for Taylor Wimpey (LSE: TW.), which I bought at the same time. After an early burst, the share price has slumped 36% over the past year. Even with its giant trailing 9.5% dividend yield, I’m still about 10% down overall.
I’m not too concerned. Lloyds has put me comfortably ahead overall, and I believe Taylor Wimpey will recover in time. Here’s something that intrigues me. Both have strong UK exposure, yet the struggling economy has affected them very differently.
Banking sector rebound
Lloyds is the country’s biggest mortgage lender through Halifax, so I might have expected higher interest rates and weak housing growth to hit it hard. Instead, inflation has widened net interest margins, the gap between what it pays savers and charges borrowers.
Taylor Wimpey has had the opposite experience. Inflation has driven up the cost of labour and materials while denting house buyer affordability.
In 2024, it completed 10,593 homes, down from 10,848 the year before. The average private sale price fell 3.8%, from £370,000 to £356,000.
Lloyds has also benefitted from a wider shift in sentiment towards banking stocks, which lifted the sector, while housebuilders as a whole went the other way.
FTSE 100 dividend stars
Markets shrugged off a drop in Lloyds’ 2024 profits from £5.5bn to £4.5bn. It helped that it still had enough cash to launched a £1.75bn share buyback. The bank also increased its final dividend by 15% to 3.17p.
By sharp contrast, Taylor Wimpey’s profits plunged from £349m in 2023 to £220m in 2024. The board trimmed its dividend by 1.25% to 9.46p. There was no buyback.
Lloyds’ trailing yield’s notably lower at 3.8%, although that’s mostly due to the rising share price. It’s forecast to hit 4.27% over the next year. Taylor Wimpey’s is expected to dip slightly to 9.11%, although that’s still magnificent.
Forecast growth and income
Analyst consensus suggests the Lloyds share price could hit 90.72p within 12 months, an 8.62% rise. Add its forecast yield and the total return could be 12.89%, which would turn £10,000 into £11,289.
For Taylor Wimpey, analysts predict 136.4p, a massive 36.34% gain. Add the yield and the total return could hit 45.45%, turning £10,000 into £14,545. That’s £3,256 more – if those forecasts are true, of course. I’ve been anticipating a housebuilding sector recovery for years, and it hasn’t happened yet.
Taylor Wimpey’s slightly cheaper too, trading at a price-to-earnings ratio of 11.98 compared to Lloyds at 13.18. That may tempt investors to consider buying, though both firms remain vulnerable if the economy stays weak and Budget tax hikes knock sentiment further.
I bought both these stocks to hold for the long-term, and that’s not changing. But I have some cash in my trading account now, and I’m seriously considering Taylor Wimpey. I think it looks the better recovery play today.
