As an old-school value and income investor, I love buying and owning shares that offer generous dividend yields. However, as a veteran with almost four decades in financial markets, I’m wary of ultra-high (double-digit) cash yields. And I’ve spotted one in the mid-cap FTSE 250 index that looks at risk. Read on to find out which…
Dividend distress
For those unfamiliar with the term, dividends are cash payouts made by some companies to their owners (shareholders). However, not all listed businesses pay dividends. Some companies make losses and therefore lack spare cash to distribute. Other firms prefer to reinvest their current profits to stimulate future growth.
Another problem is that future dividends are not guaranteed. During times of trouble, they can be cut or cancelled at short notice. Indeed, this happened repeatedly during the Covid-19 pandemic of 2020/21.
Though most member companies of the elite FTSE 100 index do pay dividends, that’s not the case in the FTSE 250. Nevertheless, my family portfolio is packed with dividend-paying stocks from both indexes. What’s more, I’m always looking out for new dividend dynamos to add to our existing holdings.
Taylor made?
Shares in British housebuilder Taylor Wimpey (LSE: TW.) offer one of the FTSE 350’s highest dividend yields. Yet I can’t help thinking that this flood of cash might slow to a trickle.
As I write, Taylor Wimpey shares trade at 78.9p, valuing this group at under £2.8bn. That’s pretty big for the FTSE 250, but nowhere near big enough to join the FTSE 100. And on Tuesday (28 April), the share price plunged as low as 78.45p — levels not seen since early 2013 (13 years ago). Yikes.
At these lowly levels, this stock offered a trailing dividend yield nearing 9.7% a year. At first glance, this seems like a rich reward for buying and patiently holding these shares, but this juicy payout is unlikely to continue.
Tough times
In a trading statement released yesterday, Taylor Wimpey reported lower weekly sales of new homes, plus an order book 5% lower at £2.2bn. Also, the US-Iran war is likely to push up building costs later this year, further crimping Taylor Wimpey’s profit margins.
The final dividend has just been cut from 4.66p in 2025 to 2.95p in 2026. With this saving, the company will buy back more of its own shares. Perhaps not a bad idea, given their lowly rating? The firm may also reduce its interim dividend for this financial year, slashing that near-10% yearly yield to something more affordable.
I’ve debated buying Taylor Wimpey shares many times in 2025/26. I’m glad I held off, as this stock is down 9.7% over one month and 27% over six months. It’s also plunged 32.7% over one year and crashed 55.9% over five years. (All returns exclude dividends.)
For me, this episode confirms one market lesson I know only too well from experience. Market-beating dividend yields can sometimes be horribly undermined by steep share-price falls. That’s why I tend to avoid stocks with stagnating or unsustainable dividend payouts. In short, what I gain in one hand, I can sometimes lose from the other!
