In September I decided Taylor Wimpey (LSE: TW) shares had been priced for a housing market crash that wasn’t going to happen, and bought them.
I calculated that interest rates were close to peaking while lenders were cutting mortgage rates to get ahead of the curve. Although house prices were likely to continue their slow dive, I didn’t expect a painful belly flop.
Taylor Wimpey looked unmissable value trading at around six times earnings and yielding 7.5%, so I bought its shares on three occasions. My early purchase is up 25% and I’m up 16.63% overall. I’ve reinvested my first dividend too.
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Averaging up
Others will have done a lot better. The Taylor Wimpey share price has climbed an impressive 42.74% over the last year (with dividends on top). Its success shows how blue-chips can deliver outsized returns, when the wind is in their sales.
Yet housebuilders have had a bumpy decade, taking a beating from Brexit and the pandemic. I thought that had to change, given that we live in a country whose population is rising a lot faster than new-builds. Taylor Wimpey isn’t the only one whose shares are booming. Barratt Developments, Persimmon and others are doing nicely too.
This means that Taylor Wimpey isn’t as cheap as it was, trading at 7.63 times earnings and yielding 6.55%. That still looks good value though, and if I wasn’t short of cash as Christmas looms, I’d top up my stake once more.
I didn’t buy the stock hoping to make a fast buck. I plan to hold my Taylor Wimpey shares for years – for life if I’m lucky – to benefit from a regular stream of dividends plus some share price growth too if I’m lucky. There are no guarantees, of course. Dividends can be cut, share prices can fall.
Going all in
That’s why I’m building a portfolio of around 15 different FTSE 100 stocks, across different sectors, with different profiles. But what if I was to bank my entire retirement on just Taylor Wimpey shares? How much would I need to invest?
The Pensions and Lifetime Savings Association reckons a single person needs £23,300 a year to achieve the ‘minimum’ retirement living standard. From April, the new State Pension will pay a maximum £11,501.
Let’s say I wanted to generate the remaining £11,799 purely from Taylor Wimpey shares, based on its 2022 dividend of 9.4p per share, which is expected to remain at that level in 2023. In that case, I’d need 125,521 shares to hit my income target.
At today’s price of around 143.7p, that would cost me £180,374. Fat chance. That’s more than my entire self-invested personal pension (SIPP) and would mean no PlayStation upgrade for my son this Christmas either.
While it can be tempting to go all in on a favoured stock, it’s a high-stakes strategy. Diversification may lower potential rewards, but appreciably lowers the risks. Taylor Wimpey management has run a steady ship but you never know what’s round the corner. I’ve got around 5% of my SIPP in Taylor Wimpey shares, and that will have to do for now.
