The average house price in 2026 has grown to £274,000. What would that kind of sum look like in a Stocks and Shares ISA? And how much passive income might it return? Let’s answer those questions.

How much?

In simple terms, an investor might aim for a 5% dividend yield in the ISA, which would return £13,700 yearly from the £274k. This compares favourably to the current yields from housing, which hovers around 3%-7%. That figure does vary massively depending on location, house type, and other factors.

The long-term average, including share price appreciation, is closer to 10%. This would return an average of £27k a year. However, this would not be at all consistent with many down as well as up years along the way. Given the often volatile nature of the stock markets, it’s considered a bad idea to try to rely on such a high figure as passive income.

One side of the coin? Historical performance suggests stocks win handsomely in purely financial matters over long periods. The other side? There are no guarantees the future will be the same. A stuttering economy, a potential AI bubble popping, or a multi-decade stagnation like that Japan experienced are all risks investors should be aware of.

One option

Another advantage to the Stocks and Shares ISA is the flexibility of the type of investments within it. Let’s say you were bullish on the housing market in general. Then you might wish to consider a stock in a company like Taylor Wimpey (LSE: TW.) that builds houses up and down the country.

This does require doing the research of course. The housing sector is being rocked at the moment by inflation. The rising cost of materials and wages has led to a rough few years for such stocks. Taylor Wimpey shares have dropped 55% down to 79p. Someone who is not willing to take the rough with the smooth may think a house is a safer place to invest in.

Amid the turmoil, there may be a bargain hiding in plain sight too. Taylor Wimpey pays a huge dividend of 9.57% which looks stable for the short term. The possibility of falling interest rates could be a boon for the stock too. If general conditions improve, then this could be one of those stocks that perform above average and deliver passive income for years to come.

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I added all three to my SIPP in 2023. They’ve been a disaster for my portfolio, each falling a third on my watch. And that’s despite me averaging down on bad news. There’s been plenty of it.

When will Taylor Wimpey shares recover?

The first flop is FTSE 250-listed house builder Taylor Wimpey (LSE: TW) – although it was in the FTSE 100 when I bought it. The shares are down 33% over the last year, and 55% over five. It now trades on a low forward price-to-earnings (P/E) ratio of just over 11. The forward yield is a mind-boggling 11.9%, but don’t be fooled. The dividend is being cut so investors can expect around 7.5%. Which still isn’t bad.

Taylor Wimpey has been hit by affordability issues, the cladding scandal, rising cost of labour and materials, the end of the Help to Buy scheme. Today, there’s the threat of rising inflation and interest rates. So can it turn that round?

Alas, I’m not very optimistic for this year. The UK economy looks set to struggle, as the Iran conflict drags on. I still believe it’s time will come. And I will keep reinvesting my dividends until it does.

Why is Diageo struggling?

Spirits giant Diageo (LSE: DGE) is still in the FTSE 100, although it’s not for want of trying. Its shares have done just as badly as Taylor Wimpey’s, down 34% over one year and 55% over five.

The Johnnie Walker, Baileys, Guinness and Smirnoff owner has also been struck by the cost-of-living crisis, which has forced drinkers to trade down from its premium brands, as well as US tariffs, and localised issues in Latin America and China.

It’s now headed by turnaround specialist Dave Lewis, who salvaged Tesco, and I’m optimistic he’ll work his magic again here. Sadly, he started by halving the dividend. Diageo’s forward P/E is also low at 12.4, way below its 10-year average of 22. But with the oil price spike squeezing drinkers all over again, patience is once more required.

JD Sports is a beaten stock

I’m afraid the same must be said of my final portfolio straggler – self-styled ‘King of Trainers’ JD Sports Fashion (LSE: JD). This was also hit by the consumer squeeze. The timing was unlucky, because it had lined up a big move into the US through the $1.1bn purchase of local retail chain Hibbett.

I thought JD looked like an unmissable bargain with a forward P/E of around six. Unfortunately, it’s still around that today. The JD Sports share price is down 17% over the last year and 64% over five.

I think all three have massive recovery potential and are worth considering today. Investors may have to be patient though. They all need a wider economic recovery, and that could take a year or two. I’m backing Diageo to recover first. It’s updating the market tomorrow (6 May), and I can’t wait to see what it says.

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Could they be a good option to consider for an ISA or Self-Invested Personal Pension (SIPP)? Let’s discuss.

Three things to like

At first glance, Taylor Wimpey shares look attractive. For a start, we have the massive yield mentioned above. For 2025, the company paid out 7.62p per share in dividends. So with the share price sitting below 80p, we’re looking at huge dividends.

Second, Britain continues to have a housing crisis. So the long-term story here appears to be favourable. It’s worth noting that according to the National Housing Federation, there are 8.5m people in England who can’t access the housing they need. Taylor Wimpey and the other UK housebuilders could help to fix this.

One other attraction of the stock is that it has fallen a long way. Over the last 18 months or so, it has dipped about 50%. After that kind of fall, there could be scope for a rebound. It’s worth noting that the average analyst price target is 108p (about 35% above the current share price).

What could go wrong?

When we dig deeper however, there are few issues that aren’t ideal. One is costs. Right now, all UK housebuilders are all saying the same thing – their costs are surging (due to energy and commodity prices). This is bad news for profits and dividends.

Zooming in on Taylor Wimpey, it said in late April that it now expects build cost inflation to be in the low to mid-single digits in 2026, up from its previous forecast of low single-digit inflation. As a result, analysts are now questioning its operating profit guidance of £400m for the year.

Worryingly, earnings forecasts are plummeting. Over the last month, the consensus earnings per share forecast for 2026 has fallen by around 10% (meaning the price-to-earnings (P/E) ratio of 12 may not be so reliable).

Another issue is affordability. All of a sudden, it looks like UK interest rates won’t come down much in 2026 (they may actually rise). This is a problem for Taylor Wimpey. Ideally, it needs rates to come down materially so that buyers pile into the housing market.

Finally, there’s the dividend. Not only is it predicted to fall to 6.96p per share this year, but dividend coverage (the ratio of earnings per share to dividends per share) is very low meaning that the payout doesn’t look sustainable.

One other thing to note with the dividend is that the company has an unusual policy. Going forward, it has said that it will return a minimum of 5% of net assets as an annual ordinary dividend, with a further 2.5% of net assets returned either as an ordinary cash dividend or via a share buyback.

Worth a look?

Putting this all together, the shares have their pros and cons. There are things to like, but there are also a lot of risks (share price weakness and dividend cuts).

Personally, I see them as too risky. But they could be worth considering if an investor has a long-term mindset and a high risk tolerance.

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Dividend distress

For those unfamiliar with the term, dividends are cash payouts made by some companies to their owners (shareholders). However, not all listed businesses pay dividends. Some companies make losses and therefore lack spare cash to distribute. Other firms prefer to reinvest their current profits to stimulate future growth.

Another problem is that future dividends are not guaranteed. During times of trouble, they can be cut or cancelled at short notice. Indeed, this happened repeatedly during the Covid-19 pandemic of 2020/21.

Though most member companies of the elite FTSE 100 index do pay dividends, that’s not the case in the FTSE 250. Nevertheless, my family portfolio is packed with dividend-paying stocks from both indexes. What’s more, I’m always looking out for new dividend dynamos to add to our existing holdings.

Taylor made?

Shares in British housebuilder Taylor Wimpey (LSE: TW.) offer one of the FTSE 350’s highest dividend yields. Yet I can’t help thinking that this flood of cash might slow to a trickle.

As I write, Taylor Wimpey shares trade at 78.9p, valuing this group at under £2.8bn. That’s pretty big for the FTSE 250, but nowhere near big enough to join the FTSE 100. And on Tuesday (28 April), the share price plunged as low as 78.45p — levels not seen since early 2013 (13 years ago). Yikes.

At these lowly levels, this stock offered a trailing dividend yield nearing 9.7% a year. At first glance, this seems like a rich reward for buying and patiently holding these shares, but this juicy payout is unlikely to continue.

Tough times

In a trading statement released yesterday, Taylor Wimpey reported lower weekly sales of new homes, plus an order book 5% lower at £2.2bn. Also, the US-Iran war is likely to push up building costs later this year, further crimping Taylor Wimpey’s profit margins.

The final dividend has just been cut from 4.66p in 2025 to 2.95p in 2026. With this saving, the company will buy back more of its own shares. Perhaps not a bad idea, given their lowly rating? The firm may also reduce its interim dividend for this financial year, slashing that near-10% yearly yield to something more affordable.

I’ve debated buying Taylor Wimpey shares many times in 2025/26. I’m glad I held off, as this stock is down 9.7% over one month and 27% over six months. It’s also plunged 32.7% over one year and crashed 55.9% over five years. (All returns exclude dividends.)

For me, this episode confirms one market lesson I know only too well from experience. Market-beating dividend yields can sometimes be horribly undermined by steep share-price falls. That’s why I tend to avoid stocks with stagnating or unsustainable dividend payouts. In short, what I gain in one hand, I can sometimes lose from the other!

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Delicious dividends

There are many ways to earn passive income outside of work. These include renting out property, earning savings interest, collecting coupons (interest) from bonds, plus state and other pensions.

Fearing the hassle of being a buy-to-let landlord, I’ve never owned investment properties. Likewise, I know no-one who got rich purely from sitting on cash. (This reminds me of a Russian proverb, “Those who take no risks, drink no Champagne.”)

For me, dividends are the easiest form of ‘free money’. These regular (or one-off) cash payments are paid by some companies to their shareholder owners. Alas, most London-listed businesses don’t pay dividends.

Also, future dividends are not guaranteed, so they can be cut or cancelled at short notice. This happened often during 2020/21’s Covid-19 crisis. Then again, the London stock market’s dividends are rising and could hit a record high this year, beating 2018’s total.

£98bn for the taking

According to estimates, members of the FTSE 100 index could pay dividends totalling £88bn in 2026. Another £10bn might come from other members of the wider FTSE All-Share index. In short, millions of investors in UK shares will claim their share of this £98bn of passive income.

Currently, this huge sum works out to 3.5% of the FTSE All Share’s market valuation of £2.8trn. That’s one of the highest cash yields on offer from major stock markets. This is why my family portfolio is packed with income-generating FTSE 100 and FTSE 250 stocks.

The simplest, cheapest way for investors to collect this passive income — plus capital gains as share prices rise — is to invest in a low-cost index tracker. The cheapest FTSE All Share-tracking funds charge fees of just 0.06% a year. That’s just 6p per £100 — far less than active and managed funds typically charge (and these managers usually underperform their benchmarks).

A 9.1% yield

One FTSE 250 share always crops up in my high-dividend search: Taylor Wimpey (LSE: TW). This British housebuilder’s sales have suffered since interest rates rose steeply in 2022/23. Furthermore, its key rivals have slashed their dividend payments and are buying less land to develop.

On Friday, 24 April, Taylor Wimpey shares closed at 83.98p, valuing the group at under £3bn. That’s just 1.9% above the 52-week low recorded earlier that day. This stock has dived 27.1% over one year and crashed 53.6% over five years (excluding dividends).

After these price falls, this FTSE 250 share offers a tempting dividend yield of nearly 9.1% a year. That’s triple the FTSE 100’s cash yield of 3% a year. Yet, I worry that Taylor Wimpey, like its competitors, might decide to cut this cash payout. After all, current profits do not cover this outflow, forcing the firm to dip into its cash reserve of £350m.

For now, this stock will not join my buy list. Indeed, if the UK housing market weakens in 2026/27, things could get worse for Taylor Wimpey and its cohort. Who knows, I might even steer clear until falling interest rates inject new life into property prices!

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Taylor Wimpey‘s (LSE:TW) a great example. The stock stands out in an industry known for high dividend yields – but that’s not necessarily a good thing.

Passive income

A lot of UK housebuilders have dividend yields above the FTSE 100‘s 3.35% average. But Taylor Wimpey really is something else.

It’s also been the most consistent. Barratt Redrow, Bellway, and Persimmon have all cut their dividends in the last few years. From a passive income perspective, that’s pretty attractive. But investors have to ask what’s going on?

Does the company have a magic money tree, or is there something else we need to know? That’s the big question.

Where’s the money coming from?

In a 2023 interview, Charlie Munger said the following about Warren Buffett’s investments in the Japanese trading houses:“‘It was like having God just opening up a chest and pouring money into it. It’s awfully easy money.“

Taylor Wimpey’s high and apparently sustainable dividend might look like this. But the reality’s a bit different. The high yield and the consistency come from the firm’s unique dividend policy. It returns cash based on its assets, not its free cash flow.

That means much greater stability in downturns when profits are low. But it does come at a cost for shareholders. 

What’s the catch?

Imagine having a savings account with £10,000 that pays 3% AER interest. You have to decide how much to take out each month as income. One option is you can take out the interest. In that situation, you’ll get £24.66 a month. 

Alternatively, you could withdraw a fixed percentage of the balance. Suppose you decide on 5%, for example. That way, you get £51.23, which is obviously more. But you don’t make more money — your account balance just goes down.

The situation’s the same with Taylor Wimpey. Investors get more income, but it comes out of the business they own.

So what?

No company has a magic money tree. In Taylor Wimpey’s case, the effects of its dividend policy have been showing up elsewhere. If you take out more money from a savings account than you make in interest, your balance goes down. And if a firm pays out more than it brings in, its book value goes down.

That’s what has been happening with Taylor Wimpey. And it’s why the share price is down 54% in the last five years.

That means investors have ultimately gone nowhere on a total return basis. And this is the catch with the high dividend yield.

None of this makes Taylor Wimpey any worse than the other UK housebuilders. But it does provide some important context.

An important change

Taylor Wimpey’s making a change to its capital allocation policy. It’s moving to a mix of dividends and share buybacks. With the share price down, I think that makes a lot of sense. It could help make the high yield much more sustainable in future.

Taylor Wimpey’s a stock I keep on my radar. But it’s not my preferred name in the housebuilding sector at the moment.

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Buying has been led by Legal & General, Rolls-Royce Holdings, Lloyds Banking Group and Barclays. But we’re also seeing a resurgence in popularity for Taylor Wimpey (LSE: TW.) and Barratt Redrow (LSE: BTRW).

The two housebuilders have been through a tough time, hit by high mortgage rates and a serious squeeze on buyers’ pockets. But is their long-term resilience starting to shine through? I think it might be.

Cash cows

If dividend yields are anything to go on, I’d say both of these should be on our Stocks and Shares ISA shortlists. Analysts are predicting an inflation-busting 6.4% from Barratt Redrow for the current year. And over at Taylor Wimpey, we’re looking at a stunning 8.9%.

Companies can’t guarantee their dividends, but with forecasts like these, analysts clearly appear upbeat about the sector now. In fact, 15 out of 19 analysts I can find with recommendations on Barratt Redrow rate the stock a Buy. The others have it as a Hold, with not one on a Sell rating. Their average price target for the shares, at 430p, is a whopping 60% ahead of the price at the time of writing.

The current year looks good. With April’s Q3 update, Barratt Redrow CEO David Thomas said: “We expect the Middle East conflict to have limited impact on FY26 performance, given our strong forward sales position and advanced build programme.”

And he predicted full-year “total housing completions and adjusted profit before tax in line with consensus expectations.”

Revenue rise

Analysts appear a bit less charmed by the outlook for Taylor Wimpey. And a couple of them even think we should dump the shares. But we still have 10 urging us to Buy. The forecast price target of 117p doesn’t put quite the same premium on the stock. But it’s still 35% ahead of the latest trading.

The City’s more modest enthusiasm for Taylor Wimpey is surely partly based on 2025 full-year results released in March. The housebuilder saw revenue in the year rise 13%, but with adjusted operating profit only slightly up due to tighter margins.

And we saw a painful 54% drop in profit before tax, which was put down largely to exceptional costs. Those arose through cladding fire safety provisions and related commitments.

Still, completions rose 6%, and the board announced a new £52m share buyback.

Solid forecasts

Forecasts suggest a few years of progressive profits gains for both these housebuilders. If they’re right, we could be looking at a 150% rise in earnings per share (EPS) for Barratt Redrow by 2028, with EPS at Taylor Wimpey up 250%.

However, caution’s still needed. How many times have we seen green shoots of a housebuilding recovery, only for them to be killed off by the next crisis that comes along? It could happen again. But I do see these two as attractive considerations for a 2026 Stocks and Shares ISA.

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Based on this performance, I’m not surprised if new investors are reluctant to get involved. But are we getting to a point where they might be considered a bargain?

Serious headwinds

It’s not an accident that the UK housebuilder is out of favour with the market. The last five years haven’t exactly been plain-sailing for our economy. We’ve gone from the shock of the pandemic to a cost-of-living crisis to concerns over armed conflict in Europe and the Middle East. All of these developments had or are having an impact on interest rates, building costs and, ultimately, buyer appetite.

Recent results don’t exactly inspire confidence. Back in March, the £3bn cap forecast lower profit for 2026. Somewhere in the region of £400m is now expected. This is down from the £420.6m delivered in 2025.

Of course, this was just an estimate at the time. But I’m not sure the firm’s outlook has improved since. A swift end to the Iran-US conflict looks increasingly unlikely, meaning that oil and energy prices are likely to remain high. This hardly bodes well for the next trading statement, due on 28 April. It might also help to explain why the High Wycombe-based business is proving fairly popular among short sellers.

But is it absurd to even contemplate adding it to a stock market shopping list?

It’s not all bad

I’m not so sure. As things stand, Taylor Wimpey shares change hands at a price-to-earnings (P/E) ratio of 11. That’s not dirt cheap but nor does it imply that the market is ignoring recent events. Rival Persimmon trades on a similar valuation. Barratt Redrow is very slightly less expensive.

The forecast dividend yield of 8.8% further sweetens the investment case. For comparison, the FTSE 250 index in which the company features yields 3.3%.

Yes, those cash distributions are never nailed on and signs of a further deterioration in trading could force CEO Jennie Daly to make another cut. Right now, it’s anticipated that the total dividend will barely be covered by anticipated profit.

Cut or not, whatever is received could still be regarded as sufficient compensation for being asked to wait for a recovery. Moreover, Taylor Wimpey doesn’t look financially stressed as things stand. It’s balance sheet still boasted a net cash position at the end of the last financial year.

Taylor Wimpey shares are worth considering

Things have been torrid for holders and, barring news of a proper peace deal, could stay that way. However, the long-term tailwinds remain in place. Put simply, the UK requires more quality homes to be built. As one of the biggest players, I struggle to believe this company won’t play a role in meeting that demand.

My view is that this is a business that’s under pressure; but it’s not broken. The best time to ponder buying a cyclical stock is surely when the economic chips are down. As such, I reckon the shares are worthy of a closer look.

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One of my core passive income holdings has dipped in price recently, which I am using as an opportunity to buy more. So, how much could I make here?

7%+ yield?

UK housebuilder Taylor Wimpey’s (LSE: TW) current dividend yield is 9%. This is nearly treble the present FTSE 100 average of 3.1% and sits well above my 7%+ minimum criterion. This is important to me because it effectively provides compensation for taking the risk of investing in shares over no risk at all. And no risk at all is represented in the ‘risk-free rate’ — which is the 10-year UK gilt yield. This is currently 4.8%.

Of course, yields can go up and down over time. In Taylor Wimpey’s case, analysts forecast it will rise to 9.2% over the medium term.

However, a £20,000 holding in the firm (the same as mine) at the current 9% rate as an average would make £29,027 in dividends after 10 years. This also assumes the dividends are reinvested back into the stock to harness the enormous power of dividend compounding.

On the same basis, the dividends would increase to £274,612after 30 years. At that point, the holding’s total would be £294,612.

And this would pay £26,515 a year in income from dividends alone!

Deeply underpriced to ‘fair value’?

Price is simply whatever the market will pay at any moment, but value reflects the fundamentals of the underlying business.

The difference between the two is crucial for the profits of long-term investors. This is because share prices tend to converge to their fair value over the long run.

Discounted cash flow analysis identifies where any stock should trade by projecting future cash flows and discounting them back to today.

Analysts’ DCF modelling varies depending on assumptions used — some more bullish than mine, others more bearish. However, based on my DCF assumptions — including an 8.3% discount rate — Taylor Wimpey shares could be as much as 51% undervalued at their current 85p price.

This implies a fair value for the shares of around £1.73 — more than double where it trades today.

Strong forecast earnings growth?

Earnings growth in a firm is vital for sustained long-term gains in both dividends and share price. A risk for Taylor Wimpey is a further surge in the cost of living that may deter people from moving home. Another is any rise in interest rates that could increase the cost of its borrowing.

Nevertheless, the consensus forecast of analysts is that its earnings will grow a whopping average of 23.9% every year over the medium term.

Given the strength of this business engine, I think the share price will move close to its fair value and the firm’s dividends will rise.

As such, I will buy more of the stock at the earliest opportunity. And I also have my eye on other dirt-cheap, high-yield stocks with high forecast earnings growth as well.

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Let’s not get carried away. Shares in the FTSE 250 firm trade at roughly half their value of a full decade ago. That’s a rotten performance, although their struggles are one of the reasons I added them to my SIPP in 2023. The shares looked incredibly cheap, while the dividend yield was irresistible. I decided that once the economy picked up, the Taylor Wimpey share price would follow. Unfortunately, things got worse instead.

The housebuilders seem to be the whipping boys in every crisis. Whether it’s Brexit, the pandemic, the Ukraine war or the cost-of-living crisis, the sector takes a beating. Building houses is slow and costly, especially in the UK, and nobody knows what demand will be like at the end of it.

Ups and downs

Taylor Wimpey and the rest benefited from years of low interest rates, and got further support from the government-backed Help to Buy scheme. That was axed in 2023 The cladding fire safety scandal cost the sector a fortune.

Everything looked nicely set for 2026, with inflation and interest rates destined to fall, and the UK economy potentially picking up. Then came Iran. The oil price spike looks destined to drive up interest rates and energy costs, while spooking buyers.

The Taylor Wimpey share price duly plunged. Yet on Friday, US President Donald Trump gave investors the news they were hoping for, by saying the crucial Strait of Hormuz shipping lane was open. Share prices rallied across the board, with one or two exceptions, such as the big oil giants. Taylor Wimpey rallied too, although I had much bigger one-day winners in my portfolio.

Taylor Wimpey shares closed 3.17% higher on the day. If somebody had £15,000 in the stock, they’d have ended Friday £475 better off. But investors who think they’ve missed a bargain buying opportunity shouldn’t fret too much. The shares are still down 22% over 12 months, and almost 55% over five years. And whether the events around the Strait over the weekend will send prices down again on Monday remains to be seen.

At The Motley Fool, we only suggest investing for the long term. One day’s performance, however good, is neither here nor there. Friday’s rally could well unwind on Monday. Taylor Wimpey shares look good value with a long-term view, as the price-to-earnings ratio is a modest 10.6. The trailing dividend yield is stunning at 10.77%, but don’t be misled. The board has cut the dividend a couple of times lately, and the forward yield for 2026 is 8.35%. Still pretty good though.

I think the shares are worth considering at today’s price, but investors must approach with caution. The shares could go anywhere in the short run. Over the years, Taylor Wimpey could prove a brilliant bargain, but patience and strong nerves are required. I can see lower-risk recovery plays out there today, both on the FTSE 100 and FTSE 250.

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