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Since 19 September, housebuilder Taylor Wimpey (LSE: TW) has seen its share worth 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 dissatisfied traders. However this hasn’t occurred.
Buying and selling as anticipated
Taylor Wimpey’s current 2024 buying and selling replace confirmed that income for final yr needs to be “consistent with earlier steerage”. And 2025 appears to have gotten off to an affordable begin too. Taylor Wimpey’s order guide 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 yr – though weaker pricing within the South of England does imply that the typical home worth within the order guide is 0.5% decrease than final yr.
This is likely to be one purpose for the current weak point, however this replace was solely issued on 16 January 2025. It doesn’t clarify final yr’s hunch.
Market headwinds?
My guess is that traders had been hoping the federal government would come with some form 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 this point 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 influence on mortgage charges and affordability. That raises the chance 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I feel it is a good instance of the outdated inventory market adage “purchase the hearsay, promote the information”.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 income. This dump has left Taylor Wimpey shares buying and selling barely beneath their June 2024 guide 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 bit of 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 web money of £565m and will most likely afford to take care of the dividend. Nevertheless, administration gained’t essentially need to do that. It could need to protect money in order that it might probably 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 might 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 grow to be attractively valued. However I don’t really feel it’s undoubtedly too low-cost to disregard. I’m additionally barely apprehensive concerning 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.
