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Housebuilders like Taylor Wimpey (LSE:TW) have a superb status as dependable and beneficiant dividend shares. It’s why I purchased this explicit FTSE 100 share for my very own portfolio in 2017.
However whereas the builder continued to supply above-average dividend yields, I haven’t been tempted so as to add extra of its shares to my Shares and Shares ISA. For the report, its dividend yield for 2023 and 2024 sits at a powerful 8.2%.
Nonetheless, may latest excellent news recommend that buying and selling circumstances could be about to enhance? And may I purchase extra Taylor Wimpey shares following these developments?
Excellent news, half 1
Property costs have steadily eroded as rates of interest have steadily elevated and the UK financial system has spluttered. However contemporary information from the Halifax has fed hypothesis that the market could lastly be stabilising.
Whereas common dwelling costs have been down 3.2% 12 months on 12 months in October, these costs have been up 1.1% from September. This broke a streak of six straight month-to-month reversals.
Excellent news, half 2
In different encouraging information this week, Savills predicted that the present downturn will “backside out” across the center of 2024. This can occur as mortgage charges ease in expectation of rate of interest cuts later within the 12 months, the property company stated.
It added that “though affordability is simply possible to enhance steadily, it ought to buoy purchaser confidence and permit the primary shoots of restoration to look“.
Nonetheless…
Whereas these stories contained some excellent news, there have been additionally some particulars that recommend the housebuilders will proceed to wrestle.
Halifax additionally stated that “purchaser demand… stays weak general“, with costs rising in October attributable to provide constraints as potential sellers hold their properties off the market.
The constructing society additionally stated it doesn’t count on dwelling costs to proceed rising till 2025. In the meantime, Savills thinks common costs will fall a hefty 3% subsequent 12 months.
I’m involved that the housing market may carry out even worse over the subsequent couple of years too, given the continuing hazard of sticky inflation meaning rates of interest could stay greater for longer. A pronounced downturn within the UK financial system would additionally weigh closely on dwelling gross sales.
Ought to I purchase Taylor Wimpey shares?
Taylor Wimpey’s dividend forecasts already look fragile. And any worsening of the market as advised above would make them seem much more flimsy.
For the time being, annual dividends of 9.4p per share are predicted by means of to subsequent 12 months, consistent with final 12 months’s reward. However these projections are outstripped by anticipated earnings of 9.2p and 9.1p for 2023 and 2024 respectively.
On the plus facet, Taylor Wimpey has a powerful steadiness sheet that would assist it meet these forecasts. Internet money really edged barely greater to £654.9m as of June.
However a mix of consistently-weak demand and rising construct prices may put its steadiness sheet beneath rising pressure and take a look at its means (and its urge for food) to maintain paying large dividends.
The long-term outlook for UK housebuilders stays sturdy. As that desk by Savills reveals, dwelling values seem on target to rise strongly as soon as present market hassle subsides. However proper now, I’d quite purchase different UK shares to make passive earnings over the subsequent couple of years.
