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This prime UK dividend inventory yields an attention grabbing 9.5%. That’s the very best on the FTSE 100. However it has issues too. The corporate in query is housebuilder Taylor Wimpey (LSE: TW) and its shares have plunged 40% in a yr to commerce at a 52-week low. With a price-to-earnings ratio of simply 11.9 it appears to be like priced to go. However watch out.
Taylor Wimpey shares are struggling
I purchased the inventory in 2023 with a long-term view, and I’m pleased to carry on all through the ups and downs. I’ve the compensation of dividends, even when I’m down total. The board not too long ago trimmed the interim fee from 4.8p to 4.67p, however the total dedication to shareholders appears to be like strong. It’s nonetheless promising to return round 7.5% of internet property yearly, equating to no less than £250m a yr.
Steering now factors to a forecast yield of 9.13% in 2025 and 9.3% in 2026. Whereas that’s barely decrease than at this time, it’s nonetheless a superb charge of earnings. Traders who favour high-yield dividend shares will likely be tempted. They need to even be cautious.
Pressures stay
Inflation got here in at 3.8% in July and will tick as much as 4% in September. That may hold mortgages greater than we’d like, hitting purchaser affordability and demand. Sticky inflation additionally raises Taylor Wimpey’s prices, whereas wages have additionally been climbing sooner than costs, up 4.6% a yr finally depend. April’s enhance to employers’ Nationwide Insurance coverage and the minimal wage have additional squeezed margins.
Final month’s outcomes (30 July) revealed a £92.1m first-half loss. A £222m cladding provision was the primary drag, however slowing completions additionally harm. The board reduce annual revenue steering by £20m consequently.
The group nonetheless expects to complete between 10,400 and 10,800 UK properties in 2025, a muted outlook given the federal government’s pledge to construct 1.5m properties this parliament.
Tax coverage may add to the ache. Rumours of latest levies on higher-value properties within the Price range may hit sentiment. Except they’re simply rumours.
Lengthy-term progress prospects
Traders contemplating whether or not to purchase the shares must do their homework. What I see is an effective firm having a tough time. Taylor Wimpey is essentially on the mercy of occasions past its management. Rates of interest should fall, inflation ease and confidence return earlier than housing demand strengthens. That would take time, however a yield of greater than 9% pays handsomely whereas ready.
We will’t count on an prompt restoration. Housebuilders have struggled ever since they slumped within the aftermath of the 2016 Brexit vote. Ten years in the past, the Taylor Wimpey share value hovered round 200p. As we speak, it’s slightly below 100p. So it’s dropped by half in that point. With that form of underperformance, a excessive dividend isn’t sufficient.
For traders who perceive and settle for the dangers, and may face up to extra short-term turbulence, at this time may supply a superb entry level. I’ve taken a battering however console myself with the thought that my reinvested dividends will choose up extra inventory at at this time’s lowered value.
I believe others may contemplate shopping for at this stage, simply don’t count on a easy trip. If I’m feeling courageous, I would even common down on my place.
