Taylor Wimpey (LSE: TW) is a true London Stock Exchange veteran. Shareholders have been able to grab a slice of the business since it first listed in 1947, and I myself piled back into the homebuilder in the middle of last year.
A strange time to buy in, some may say. The stratospheric property price rises that delivered knockout earnings growth over the past decade now, by my own admission, appear to be drawing to a close.
Some would argue that the FTSE 100 business may never return to those halcyon days should a disorderly Brexit hollow out the UK economy for decades to come, and also push up costs for construction firms of all colours as the inward migration of skilled workers slows to a crawl.
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Such fears have really weighed on Taylor Wimpey’s share price in 2018 and the business has lost a third of its value since the turn of January. It is now changing hands at levels not seen since the aftermath of the Brexit referendum in the summer of 2016.
Shocking shortfall
I’m still confident, though, that the Footsie firm will have the tools to deliver stunning shareholder returns in the long term, irrespective of however Britain’s future relationship with the European Union is hammered out. The country’s still-growing homes shortage is colossal and the lack of action from government means that it’s looking likely to remain so for a very long time indeed.
At the moment trading remains strong at Taylor Wimpey and its peers, the company noting last month that “customer demand for new-build homes continues to be robust, underpinned by low interest rates, a wide choice of mortgage deals and the government’s Help to Buy scheme.” And as a consequence, its order book was up 12% at 9,783 homes as of mid-November, or 9% in value terms at £2.4bn.
Clearly that strong demand, especially from first-time buyers, may fade should the UK economy take a major Brexit-related hit, sending housebuyer confidence through the floor and hitting the favourable lending environment.
I’m not expecting sales of new-build properties to fall off a cliff, though, given that the Bank of England’s benchmark rate is likely to remain much lower than those pre-2008/09 recession norms. What’s more, the rapidly-growing competition amongst the country’s lenders should continue to provide buyers with extra support in the months and years ahead.
Much too cheap
City analysts aren’t expecting earnings growth at Taylor Wimpey to stop even in these testing times, the number crunchers forecasting rises of 5% in 2018 and 1% in 2019.
That said, the tense political and economic backcloth, with the chances of a hard Brexit currently rising by the day, doesn’t mean that these near-term forecasts will prove to be correct. But in my opinion a forward P/E ratio of 6.4 times suggests that the market is far too negative over these estimates falling flat and forecasts for next year and beyond receiving swingeing downgrades.
What’s more, at current prices Taylor Wimpey is one of the hottest dividend stocks in town. Its healthy balance sheet and robust earnings outlook support estimated dividends of 15.3p per share this year and 18p in 2019, figures that yield 11.3% and 13% respectively.
That short-term outlook may remain a tad tetchy, but I believe that its rock-bottom valuation and those monster dividend yields make the builder a brilliant blue-chip to buy today.
