Today King Charles III will officially be crowned the country’s monarch. It therefore feels timely to look for a stock that’ll pay me a generous level of passive income. Perhaps one that’s fit for a king?
Taylor Wimpey (LSE:TW.) could be that stock.
The housebuilder has a policy of paying around 7.5% of its net assets — or at least £250m — in dividends each year. Based on the company’s balance sheet at 31 December 2022, this equates to £337m.
Last year, it increased its dividend by 9.6% to 9.4p per share. This would cost £332m if the same payout is made in 2023.
Dividend (pence per share)
2021
2022
Interim
4.14
4.62
Final
4.44
4.78
Total
8.58
9.40
Outlook
But housing completions are expected to be a lot lower this year. The company expects to sell between 9,000 and 10,500 houses in 2023.
Last year’s pre-tax profit per house (before legacy costs for replacing dangerous cladding) was £64,144. I therefore estimate this year’s earnings to be between £577m and £674m.
Even at the lower end of expectations, this is more than sufficient to cover a dividend of 9.4p per share.
But given the available headroom, I wouldn’t be surprised if the directors pushed this closer to 10p. This would give a yield of 7.9%, almost twice the FTSE 100 average.
Metric
2018
2019
2020
2021
2022
Revenue (£m)
4,082
4,341
2,791
4,285
4,420
Profit before tax (£m)
811
836
264
680
828
Exceptional costs relating to cladding replacement (£m)
–
–
10
125
80
Net assets (£m)
3,227
3,308
4,017
4,314
4,502
Completions
14,933
15,719
9,609
14,302
14,154
However, a recovery in the UK housing market is not guaranteed. The economy is still shrinking and the Bank of England is expected to announce further base rate increases.
However, the latest Nationwide house price survey has reported the first increase in prices for seven months.
And Taylor Wimpey has seen an increase in its weekly sales rate, although not all of these will be recorded as revenue in 2023.
I think the green shoots of a recovery are starting to appear.
My verdict
On the death of his mother, King Charles inherited the Duchy of Lancaster. The latest accounts show ownership of £59m of equities. I’ve no idea whether this includes a stake in Taylor Wimpey but if I was responsible for the Duchy’s investments, I’d buy the stock.
At 23 April 2023, the company had an order book equivalent to 8,576 homes. And 86,000 plots ready to build on. Its latest trading update says that cost increases have started to moderate and the availability of mortgages is increasing once more.
Although there’s some short-term uncertainty surrounding the state of the housing market, I’m sure it’ll pick up soon. As the outlook becomes clearer, I’m confident that the Taylor Wimpey share price will start to climb. It therefore makes sense to buy now, to mitigate against the generous dividend yield starting to fall.
In terms of my own portfolio, I already own shares in another housebuilder, Persimmon. I believe in the benefits of diversification so I don’t want to own shares in two UK builders. To be honest, I’d like to swap my Persimmon stock for Taylor Wimpey. But I’m sitting on a large paper loss at the moment so, for now, I’m going to stick with what I have.
The post 7.9% yield! Should I buy this cheap FTSE 100 passive income stock to live like a king? appeared first on The Motley Fool UK.
Don’t miss this top growth pick for the ‘cost of living crisis’
While the media raves about Google and Amazon, this lesser-known stock has quietly grown 880% – with a:
Greater than 20X increase in margins
Nearly 60% compounded revenue growth over 5 years – more than Apple, Amazon and Google!
A 3,000% earnings explosion
Of course, past performance is no guarantee of future results. However, we think it’s stronger now than ever before. Amazingly, you may never have heard of this company.
Yet there’s a 1-in-3 chance you’ve used one of its 250 brands. Many are household names with millions of monthly website visitors, and that often help consumers compare items, shop around and save.
Now, as the ‘cost of living crisis’ bites, we believe its influence could soar. And that might bring imminent new gains to investors who’re in position today. So please, don’t leave without your FREE report, ‘One Top Growth Stock from The Motley Fool’.
Claim your FREE copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#FFFFFF’);
})()
More reading
Are high-yield FTSE 100 housebuilder stocks too cheap to ignore?
Buying 12,676 Taylor Wimpey shares in May would give me a £100 monthly income
7.8% yield! I’d snap up this FTSE 100 dividend share today for passive income
8.1% yield! A FTSE 100 dividend stock I might buy before May
Better property stock buy: Persimmon vs Taylor Wimpey
James Beard has positions in Persimmon Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.