Is the Taylor Wimpey share price & 11% yield a bargain or should I buy this FTSE 250 dividend stock?

Roland Head checks on progress at housebuilder Taylor Wimpey plc (LON:TW) and reviews a FTSE 250 (INDEXFTSE:UKX) recovery play.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Housebuilding stocks have become known for their high dividend yields. But I estimate that FTSE 100 firm Taylor Wimpey (LSE: TW) may have the highest forecast dividend yield of any stock in the FTSE 350.

In a trading statement today, the builder confirmed plans to return £600m to shareholders via dividends in 2019. My sums indicate that this equates to a payout of 18p per share. At the last-seen share price of 160p, that would give a dividend yield of 11.3%.

What’s going on?

Taylor Wimpey’s share price has fallen by around 20% so far this year, as the market has continued to price in lower profits for housebuilders.

Should you invest £1,000 in Anglo American right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Anglo American made the list?

See the 6 stocks

The problem is that so far, there’s no evidence profits are falling. Today’s statement is a good example. Chief executive Pete Redfern says that political uncertainty is dampening sales in the south east, but that overall sales rates for the group have remained unchanged during the second half of the year. The firm’s current order book is for 9,783 homes, 12% higher than at the same point in 2017.

Although build costs are expected to rise by 3%-4% in 2018, this is in line previous estimates. The outlook for profits in 2018 is also unchanged. Based on broker consensus forecasts, this suggests that adjusted earnings should rise by about 5% in 2018.

Buy, sell or hold?

Mr Redfern struck a cautious note on 2019 today, suggesting that sales will be flat next year. However, to my mind, the real question is whether housebuilders can handle the planned tapering of the Help to Buy scheme, which is now due to end in 2023.

My view is that if the economy remains stable after Brexit, housebuilders could continue to trade well for a little longer yet. Many are shifting their focus to more affordable homes and towards the rental market, while developing lower-cost building methods.

Although Taylor Wimpey shares certainly aren’t without risk, I suspect there could be some value available at current levels.

Another possible choice

I’m limiting my exposure to housebuilders to a small part of my portfolio. If you’re taking a similarly cautious approach, you may want to consider another unloved high-yield stock.

Gaming software specialist Playtech (LSE: PTEC) has fallen by about 45% this year after warning on profits. So there was welcome news for shareholders this week, when the firm said that expectations for the full year remain unchanged from August.

Despite this reassurance, investors haven’t been rushing to buy the shares. Playtech’s share price remains at levels not seen since 2013.

One reason for this caution may be that the company’s exposure to the Asian market remains a worry. Revenue forecasts for Asia were cut in the summer. And although management now says that Asian revenue has “stabilised” at about €150m per year, it’s not yet clear to me how this will affect the firm’s profitability.

A speculative buy?

Broker forecasts put Playtech on a 2018 forecast P/E of 9.1 with a dividend yield of 6.8%.

Earnings are expected to rise by 17% in 2019, giving a prospective P/E of 7.7 and a yield of 7.6% for next year.

This business has historically generated strong levels of free cash flow, providing good cover for its dividend. If this record can be maintained then I think the shares could be a recovery buy at current levels.

Should you buy Anglo American now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

These 4 FTSE shares have crashed hard. Which do I like today?

These four FTSE 100 stocks have plunged in value over the last month. But after this latest market meltdown, which…

Read more »

Investing Articles

1 FTSE 250 stock that analysts are calling a ‘Strong Buy’

The FTSE 250 can be overlooked by investors, but analysts believe this stock in particular could be undervalued by as…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I asked ChatGPT to name 5 FTSE shares for the perfect SIPP. Here’s what it picked

Harvey Jones called on ChatGPT to help him decide which shares would be right to buy for a well-balanced SIPP.…

Read more »

Investing Articles

Should I load up on Rolls-Royce shares after the 17% drop?

Rolls-Royce shares have pulled back sharply in the FTSE 100 in recent weeks, leaving this Fool to wonder if he…

Read more »

Investing Articles

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »