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Since 19 September, housebuilder Taylor Wimpey (LSE: TW) has seen its share value fall by over 30%.
Why have the shares slumped? One apparent clarification may be that the FTSE 100 firm’s buying and selling has dissatisfied traders. However this hasn’t occurred.
Buying and selling as anticipated
Taylor Wimpey’s latest 2024 buying and selling replace confirmed that earnings for final yr must be “according to earlier steerage”. And 2025 appears to have gotten off to an affordable begin too. Taylor Wimpey’s order e book stood at £1,995m on the finish of December, 12.5% increased than the £1,772m reported on the finish of 2023.
The corporate expects to report a rise in completions this yr – though weaker pricing within the South of England does imply that the common home value within the order e book is 0.5% decrease than final yr.
This may be one motive for the latest weak point, however this replace was solely issued on 16 January 2025. It doesn’t clarify final yr’s droop.
Market headwinds?
My guess is that traders have been hoping the federal government would come with some sort of money bung to spice up housing exercise with the autumn Price range. Traders could bear in mind how the Assist to Purchase scheme turbocharged home costs for a number of years. Because it occurs, the one promise we’ve received from the federal government to date is that it’s going to attempt to unclog the planning system.
One different potential headwind is that rates of interest aren’t falling as quick as anticipated. This has a direct affect on mortgage charges and affordability. That raises the danger of additional stress on home costs.
Is the 8% dividend yield protected?
I feel it is a good instance of the outdated inventory market adage “purchase the hearsay, promote the information”.
Shares in Taylor Wimpey and different housebuilders carried out very nicely forward of October’s Price range. However when the precise information emerged (there wasn’t any), traders took earnings. This dump has left Taylor Wimpey shares buying and selling barely under their June 2024 e book worth of 125p. That’s a standard signal of worth for a housebuilders.
I’m additionally tempted by the 8% forecast dividend yield. Nevertheless, I’m a little bit involved that the forecast payout of 9.4p isn’t absolutely lined by anticipated 2024 earnings of 8.2p.
Taylor Wimpey ended final yr with internet money of £565m and will most likely afford to keep up the dividend. Nevertheless, administration received’t essentially wish to do that. It could wish to protect money in order that it might probably develop its construct fee if market circumstances enhance.
What’s extra, CEO Jennie Daly already has a get-out-of-jail-free card for a dividend reduce. Her earlier steerage on dividends implied that the payout may fall to a minimal of seven.1p per share, if wanted. That may give the inventory a extra regular 6.1% yield.
My verdict
Proper now, I’m on the fence about Taylor Wimpey. I feel there’s an opportunity the inventory’s turn out to be attractively valued. However I don’t really feel it’s positively too low cost to disregard. I’m additionally barely nervous in regards to the security of the dividend.
For these causes, I’m going to attend till the corporate’s outcomes are revealed in February earlier than revisiting this case.
