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Do you just like the sound of a dividend inventory with an 8.6% forecast yield, and with analysts additionally predicting a share worth rise of 21%?
Me too. The one I’m speaking about is Taylor Wimpey (LSE: TW.), which has been by means of a tricky patch these previous few years.
Value targets
There’s a reasonably sturdy purchase consensus out on Taylor Wimpey shares for the time being, with a mean goal worth of 132p. From the 109p worth on the time of writing, that will counsel a 21% improve. These targets are usually brief time period too, and forecasts out to 2027 are upbeat about earnings. So perhaps we should always count on additional positive aspects to return.
Analysts predict a 75% rise in earnings per share between 2024 and 2027. Primarily based on in the present day’s share worth, that will counsel a price-to-earnings (P/E) ratio of simply 10 by 2027.
That appears approach too low-cost to me, particularly for a inventory providing such a powerful dividend yield. So why aren’t buyers dashing out to snap up low-cost Taylor Wimpey shares and push the worth up? Properly, it seems like issues are seemingly too get harder earlier than they get higher.
Weaker demand
A buying and selling replace on 1 October was first rate, with the corporate confirming its steerage for between 10,400 and 10,800 UK completions this yr. However we additionally heard of “softer market situations starting within the second quarter“. And the variety of retailers is count on to dip barely by the tip of the yr.
Analysts count on earnings per share to fall brief this yr, and never cowl the expected dividend. And talking of the dividend, they count on it to drop barely between now and 2027 — although not by a lot.
It suits in with this yr’s interim payout, lowered to 4.67p per share from the 4.8p paid on the midway stage in 2024. However even the marginally softer dividend predicted out to 2027 would nonetheless yield 8.3% on in the present day’s share worth. I see an excellent little bit of security margin in that.
Beating the professionals
The outlook for rates of interest continues to be unsure. Sure, September inflation got here in higher than anticipated. However at 3.8%, we nonetheless have some method to go.
So the outlook for the subsequent yr or two is cloudier than I’d actually like, as an investor in home builders myself — I purchased Persimmon shares a while in the past.
However I believe that offers non-public buyers a major benefit over the massive Metropolis companies. An unsure short-term outlook can maintain them away, for worry of ending the yr holding shares which might be down.
Lengthy-term outlook
However we are able to merely ignore all of that, without having to care what our short-term portfolio allocation seems like. Even when Taylor Wimpey’s return to progress would possibly take longer than we’d hoped, it doesn’t matter.
I believe any investor who sees good long-term worth right here in a sector with a robust future — as I do — ought to contemplate shopping for Taylor Wimpey shares. If I wasn’t already within the sector, Taylor Wimpey can be my alternative. I’d nonetheless purchase some — the temptation is powerful.
