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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 rationalization is likely to be that the FTSE 100 firm’s buying and selling has disenchanted buyers. However this hasn’t occurred.
Buying and selling as anticipated
Taylor Wimpey’s current 2024 buying and selling replace confirmed that income for final 12 months must be “consistent with 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% larger than the £1,772m reported on the finish of 2023.
The corporate expects to report a rise in completions this 12 months – though weaker pricing within the South of England does imply that the typical home value within the order e book is 0.5% decrease than final 12 months.
This is likely to be one cause for the current weak point, however this replace was solely issued on 16 January 2025. It doesn’t clarify final 12 months’s stoop.
Market headwinds?
My guess is that buyers had been hoping the federal government would come with some sort of money bung to spice up housing exercise with the autumn Finances. Buyers might keep in mind how the Assist to Purchase scheme turbocharged home costs for a number of years. Because it occurs, the one promise we’ve bought from the federal government to date is that it’ll 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 impression on mortgage charges and affordability. That raises the danger of additional stress on home costs.
Is the 8% dividend yield protected?
I believe it is a good instance of the previous inventory market adage “purchase the hearsay, promote the information”.
Shares in Taylor Wimpey and different housebuilders carried out very effectively forward of October’s Finances. However when the precise information emerged (there wasn’t any), buyers took income. This unload has left Taylor Wimpey shares buying and selling barely beneath their June 2024 e book worth of 125p. That’s a conventional signal of worth for a housebuilders.
I’m additionally tempted by the 8% forecast dividend yield. Nonetheless, I’m just a little involved that the forecast payout of 9.4p isn’t totally coated by anticipated 2024 earnings of 8.2p.
Taylor Wimpey ended final 12 months with internet money of £565m and will in all probability afford to take care of the dividend. Nonetheless, administration gained’t essentially need to do that. It might need to protect money in order that it may possibly broaden its construct price if market situations 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 might fall to a minimal of seven.1p per share, if wanted. That will give the inventory a extra regular 6.1% yield.
My verdict
Proper now, I’m on the fence about Taylor Wimpey. I believe there’s an opportunity the inventory’s turn out to be attractively valued. However I don’t really feel it’s undoubtedly 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 printed in February earlier than revisiting this example.