We might be in a property slump, but Taylor Wimpey (LSE: TW.) shares have been climbing since June.
We’re still looking at a fall in the past five years. But I think the omens could be coming together for a new bull run.
Property prices
Taylor Wimpey has been hit by two things. One is the property market slump resulting from soaring interest rates. The other is a rise in costs due to general inflation.
And it can be hard to pass on those costs to customers when fewer of them can afford to take on mortgages. But isn’t this all a short-term thing?
Well, so far in 2023, things do look tough. The first half brought a 21% fall in revenue. And profit before tax dropped by 29%.
But what I think concerns me most is that Taylor Wimpey’s operating margin took a hammering. It fell from 21% at the end of 2022, to just 14%. By the time that squeeze makes it down to the adjusted earnings per share line, we see a 44% drop.
Dividends
Still, what counts most for me is dividends, and I’m talking about long-term income.
Unusually, Taylor Wimpey’s policy is to pay 7.5% of net assets each year as ordinary dividends. It’s not a proportion of earnings, which could have seen the 2023 payout slashed.
No, the board actually lifted the H1 dividend slightly, by 3.7%. That’s based on its view that full-year completions should be near the top end of forecasts.
And, with the share price so low, the forecast dividend yield for the full year is now up at a whopping 8.5%.
Pressure
According to both Halifax and Nationwide, the 2023 property price fall is the biggest since 2009. Still, we don’t see falls very often. And if prices rise for 13 out of every 15 years, I rate that a long-term win.
Still, we’re not out of the short-term pain yet, and I can see pressure on the dividend. Some experts think inflation and interest rates won’t fully cool until well into 2024, and house prices won’t get back on track until the end of that year.
They might be right. And for Taylor Wimpey to maintain the same dividend level in 2024 could be a tough task.
Net cash held up well enough in the first half of 2023. But the board reckons that by the end of this year, the figure could be around a third lower than December 2022.
Long term
So, more short-term pain for shareholders? Yes, I think there could be.
But, even if it halves in 2024, the Taylor Wimpey dividend yield would still come in around the FTSE 100 average. If the share price doesn’t move, that is.
And looking to the long term, by which I mean a decade or more, I think I see one of the best dividend prospects in the whole of the Footsie here.
Will I buy? Well, I already hold housebuilder shares. But for my next buy, I might just double up with some Taylor Wimpey.
