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I had a shock this morning after I checked my SIPP and noticed the Taylor Wimpey (LSE: TW) share worth 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 worth usually drops to mirror 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 impression could be notable.
A sky-high yield like this one is vastly tempting, but it surely may also be a warning signal. Yields robotically rise when the share worth falls, so it may be an indication of an organization in bother and buyers must tread rigorously. Taylor Wimpey shares have fallen by 35% within the final yr. And at simply over 100p in the present day, 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, greater development prices and stretched affordability have all weighed on development corporations.
Stable, if cautious, outcomes
Taylor Wimpey’s newest outcomes, printed on 1 October, confirmed the board expects 10,400 to 10,800 UK completions this yr and an working revenue of £424m, barely up from £416.2m in 2024. The whole order guide 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 financial system and convey patrons again. There’s a possible secondary profit. Falling charges must also 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 received’t be in a rush at hand out additional rate of interest cuts.
With a price-to-earnings ratio of 12.5, the inventory seems to be 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 earnings when the dividend fee 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 subsequent yr. Mixed with the dividend, whole returns might prime 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 suppose the shares are properly value contemplating for long-term buyers prepared to experience by some short-term volatility. If wider financial circumstances enhance, there could possibly be real progress forward. However that seems like a fairly large ‘if’ proper now.
Taylor Wimpey combines super-high earnings with patchy capital progress. However sooner or later, I feel the expansion is more likely to come. The issue, as ever, is that we don’t know when. Latest historical past suggests buyers could need to be affected person, however not less than they will hold reinvesting these dividends to benefit from in the present day’s downbeat share worth. That’s my technique, anyway.
