A funny thing has happened to Taylor Wimpey (LSE: TW) shares of late. They’ve shot up 35% in the last six months, despite house price crash fears. The housebuilder has now recovered from last October’s sell-off to trade at the same level as a year ago.
This both pleases and annoys me. I’m pleased because I’ve repeatedly said its shares were far too cheap and offered a brilliant buying opportunity. Yet I’m also frustrated, because I didn’t have the cash to buy them.
Still a good time to buy it?
FTSE 100 housebuilders like Taylor Wimpey took a beating in the wake of former Chancellor Kwasi Kwarteng’s mini-budget fiasco, when sent mortgage rates rocketing past 6.5% and made a property crash seem inevitable.
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Swap rates used to price mortgages have since fallen sharply and buyers can now get a five-year fixed-rate for less than 4%, shoring up demand.
Last week, Taylor Wimpey CEO Jennie Daly reported incremental improvement in sales during the spring selling season, with “continued recovery in demand from the low levels experienced towards the end of 2022, supported by good mortgage availability”.
That triggered the latest leg of the share price recovery, but it’s not out of the woods yet.
Its total order book dropped 21.4% from £3.027bn a year ago, to £2.379bn on 23 April. This represents a dip from 11,119 homes to 8,576. However, build cost inflation is starting to moderate, and management expects that to continue over the year.
Despite the recent share price recovery, Taylor Wimpey still looks cheap, trading at just 6.8 times earnings. It’s just not as cheap as it was. The big attraction is the dividend, with the shares currently yielding 7.3% a year, covered twice by earnings. Management has a policy of returning 7.5% of net assets each year to shareholders, in two equal instalments.
Maybe I’ll wait
Taylor Wimpey is set to pay a final ordinary dividend of 4.78p on 12 May, with the full-year payout totalling 9.4p. Based on that, I’d need to buy 12,767 shares to generate my monthly income target of £100. In practice, it will be slightly less, assuming the board hikes the dividend again in 2023 (it could cut it instead, of course).
Buying 12,676 shares at today’s share price of 128.1p would cost me £16,238. That would swallow up most of my entire Stocks and Shares ISA allowance for the 2023/24 tax year, leaving me little left to snap up other opportunities.
I already have exposure to the housing market via Persimmon. Also, I’m always wary of buying shares on the back of a recent spike. I wish I’d had the money to buy Taylor Wimpey a few months ago, when I first identified the opportunity.
I’ll see where the share price goes over the next few months, and take advantage of any dip to buy it. Rather than £16,238, I’ll probably invest around £3,000. That would give me monthly income of around £20 rather than the £100 I originally dreamed of, but with a fair wind it should grow over time.
