There are days when the Taylor Wimpey (LSE: TW) share price springs into life but sadly, not enough of them. Shares in the FTSE 250 housebuilder are down 20% in the last year, and 35% over five years. My response? To keep buying more and more of them. What am I thinking?
FTSE 250 comeback opportunity
It looks like a crazy thing to do. Sometimes I wonder myself, but I see two compelling reasons to buy Taylor Wimpey shares today.
The first is that investing tends to be cyclical. Shares have a good run, but then they get a bit pricey or struggle to maintain revenues and profit growth, and investors back off. Or they have a bad run, until they look too cheap to ignore, and investors start betting they’ll make a recovery.
In my view, Taylor Wimpey is at the latter stage today. The stock looks good to go with a price-to-earnings ratio of just over 12. Yet so far, the shares refuse to take off.
Taylor Wimpey also offers long-term investors one massive consolation. It has a quite stunning trailing dividend yield of almost 9.2%. That’s double what investors can get from risk-free asset classes such as cash and bonds. Obviously, dividends aren’t guaranteed, while a falling share price may wipe out the income benefits. But I still find the income irresistible, and will reinvest every dividend I get while waiting for the shares to kick on.
Right now, it looks like the perfect value stock. Imagine getting that kind of income, and a recovering share price?
I’m not the only one who expects better tidings in 2026. The 16 analysts offering one-year price forecasts have produced a median target of 128.5p. If they’re right, that’s an increase of almost 25% from today’s 102.65p, which would be fabulous. Could it happen?
Growth and income forecasts
The UK housing market isn’t exactly flying right now, as the affordability crisis drags on. Wages have been rising steadily but that looks likely to slow, while the cost-of-living crisis is still squeezing potential buyers.
Most analysts expect the Bank of England to cut base rates by 25 basis points to 3.75% on 18 December, with up to three more cuts ollow in 2026. If they’re right, mortgage rates would plunge, and demand might pick up.
Falling interest rates would also hit returns on cash and bonds, and make high-yield FTSE stocks like this one seem even more attractive. Assuming the Taylor Wimpey dividend holds, that is.
After four years of growth, the board cut the dividend per share by 1.25% in 2024, to 9.46p. I wouldn’t be surprised if it trimmed it again in 2025.
Analysts appear to agree. The forecast yield for next year is slightly lower than today, at 8.89%. But that’s still a brilliant rate of income. Combined with that forecast share price growth, the total return would near 34%. That would turn a £10,000 investment into almost £13,400.
Obviously this isn’t guaranteed but despite my repeated disappointment, I still think Taylor Wimpey shares are well worth considering today. I might even buy more myself.
