In September and November last year, I started filling my Self-Invested Personal Pension (SIPP) with Taylor Wimpey (LSE: TW) shares. And I’m jolly glad I did.
The share price is up 34.39% over the last 12 months. The fact that it’s still down 4.69% over five years shows what a rough ride it had as it braved the pandemic, rocketing interest rates and the cost-of-living crisis.
I bought the shares when they were valued at around six times earnings. They looked ripe for a recovery when interest and mortgage rates started to fall, reviving the housing market. We’re still waiting, but the stock’s risen in anticipation.
Income and growth
The other big attraction was the dividend. When I bought the shares they yielded around 7.5%, one of the highest on the FTSE 100. I’ve already received two payouts, in November and May, and ploughed both straight back into the stock.
While a high yield’s great, it isn’t everything. I like to get a rising income too. Happily, Taylor Wimpey has a pretty solid track record of dividend growth, although it’s not perfect. See what this chart says.
Chart by TradingView
In December 2016, the board paid a dividend per share of 2.29p. Two years later, it hit 3.8p per share. Then the pandemic struck. Investors didn’t receive anything in 2020 but when the dividend resumed it was at a higher rate of 4.14p.
However, growth has slowed. The last dividend was held at 4.79p per share. It isn’t hard to see why.
In 2023, pre-tax profits fell 42.8% to £473.8m. Revenues slumped 20% to £3.5bn, as high mortgage rates squeezed demand and prices. Inflation also drove up input costs such as materials and labour.
FTSE 100 stalwart
In 2022, Taylor Wimpey completed 14,154 properties. Last year, that slumped to 10,848. Despite improving market conditions, that will slip again to 9,500-10,000 this year. It’s not hard to see why dividend growth has stalled.
Yet its board is well aware that it operates in a cyclical market. Its policy is to pay a dividend “throughout all stages of the housing cycle and additional significant surplus cash returns to be made at appropriate times”.
It has also set a target of returning 7.5% of net assets to shareholders every year. This will total at least £250m, paid in two equal instalments. This is underpinned by its “strong and resilient business model”, which is why I picked this housebuilder in the first place.
No stock’s without risk, even sector leaders. Housebuilders are buffeted by every economic storm. They crashed harder than any other sector after Brexit. Also, if Labour wins the election and builds 1.5m homes as promised, that could squeeze prices.
Yet I think we’re near the bottom of the cycle. I’d buy more Taylor Wimpey shares today, but I already have a pretty decent stake. I think my dividend income stream looks safe. I’m already looking forward to the next payout.
The post Taylor Wimpey shares yield a fabulous 6.41%, but is the dividend safe? appeared first on The Motley Fool UK.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Get your free passive income stock pick
More reading
I’m looking for passive income! Are these the best stocks to buy?
If I bought 10,000 Taylor Wimpey shares, how much dividend income would I get?
5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income
These FTSE dividend shares all offer 6%+ yields!
Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income
Harvey Jones has positions in Taylor Wimpey 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.
