2022 is almost over and it’s a been a good year for investors like me who love buying cheap dividend shares with sky-high yields. The FTSE 100 is jam-packed with dividend aristocrats. Deciding which to buy is like shooting fish in a barrel.

It looks like 2023 will be another good year for dividend shares, according to investment platform AJ Bell. It forecasts the index as a whole will yield a juicy 4.1% next year. That beats the majority of cash savings accounts with any share price growth and share buybacks on top of that.

I’m targeting dividend shares

However, I prefer to buy individual FTSE 100 stocks and by doing so I can get double that forecast 4.1% yield.

Housebuilder Taylor Wimpey (LSE: TW) currently yields 8.39% a year. That’s a stonking rate of passive income. Although as ever with high-yield stocks, there is a danger the payout may be unsustainable. 

This company is operating in a tough sector as interest rates rise and analysts predict a house price crash. Rival Persimmon is in the process of cutting its dividend, and Taylor Wimpey could follow suit, but I’m not convinced it will.

The Persimmon yield almost hit 20%, making Taylor Wimpey’s look quite reasonable by comparison. Especially since it is covered a solid 2.1 times by earnings.

Last month, Taylor Wimpey reported a fall in sales and spike in cancellations, as the cost-of-living crisis hits demand. Things may get worse before they get better, but I suspect the UK’s housing shortage will prevent a severe crash. Especially since mortgage rates are not expected to rise as much as recently assumed.

Taylor Wimpey is forecast to deliver annual operating profits of around £922m and has a net cash position. That makes it a buy for long-term investors like me. Especially at today’s low valuation of 5.6 times earnings.

Several FTSE 100 stocks offer even higher income, including Aviva (8.4%), Vodafone (8.95%) and M&G (9.85%). I’m setting my sights even higher by opting for mining giant Rio Tinto (LSE: RIO), which yields a staggering 11.35%, the highest on the index.

I’d buy this FTSE 100 income stock too

That’s despite the fact that management halved the dividend in July, after earnings fell short of expectations. It is covered 1.6 times by earnings, which is reasonably solid and even if cut again, the yield should still be pretty high.

The Anglo-Australian miner has been hit by Covid lockdowns and property market worries in China. Those lockdowns have now been eased but now the world is waiting to see how rapidly Covid spreads without them.

The Rio Tinto share price has done surprisingly well this year, rising 15.82%. Over five years, it’s up almost 60%. Yet it still looks cheap, trading at just 5.38 times earnings. I actually bought the stock in October, and the share price around 15% up since then, so I’m happy. 

At today’s valuation, I reckon Rio Tinto is still a buy for me as a long-term investor willing to see through today’s short-term challenges. Now roll on 2023 and let the income flow.

The post FTSE 100 to yield 4.1% in 2023! These 2 dividend shares pay more than twice that appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

Harvey Jones holds shares in Persimmon and Rio Tinto. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Personally, I don’t see the point in buying a buy-to-let property when I can generate far superior income from a top FTSE 100 dividend stock. Especially since I can get capital growth on top when markets finally start rising again. 

I can even get direct exposure to the fortunes of the UK property market, by investing in a house builder such as Taylor Wimpey (LSE: TW).

While bricks and mortar will always have its appeal, investing in dividend stocks seems to me like a far easier way to achieve the same goal.

I really like this dividend stock

Shares are so much easier to buy and sell than property. Transactions take seconds rather than months. The stamp duty charge is much lower at just 0.5%, whereas it now starts at 5% on prices above £250,000. Buy-to-let investors pay a 3% stamp duty surcharge as well.

I reckon most landlords would be delighted to get the same yield as Taylor Wimpey offers. It is currently forecast to pay an income of 9.6% a year.

While a high yield is often sign of a business in distress, this dividend is nicely covered 2.2 times by earnings. Although I accept that this reflects the fact that the Taylor Wimpey share price has fallen a lot faster than the property market.

It is down 36.96% over 12 months, and 52.91% over five years. By comparison, the average home has climbed 9.9% over the last year to £293,835, Halifax figures show, and is up 30.5% measured over five years.

This only confirms my view that property is expensive right now. It has to fall, as mortgage rates rise. At the same time, housebuilder stocks look attractively valued. 

Today, I can buy Taylor Wimpey for just 4.9 times forecast earnings. While markets could fall further, today’s low entry price gives me some protection against further volatility. It should also offer me plenty of upside, when the stock market recovery comes.

I don’t think that will happen for a little while yet. Not until interest rates peak, which probably won’t be until inflation is crushed by the coming recession. But it will come.

Shares may rise while property is crashing

A key difference between the stock and property market is that the former is forward-looking, and reflects where the economy is likely to be in around nine months’ time. By contrast, house prices are only just starting to feel the heat, as this year’s troubles intensify.

Taylor Wimpey faces a host of challenges. The cost of materials and wages will rise. Demand will fall as mortgage rates increase. Its dividend is not guaranteed. Yet I reckon its shares are likely to start climbing the moment the recovery is sighted, when house prices may still have some way to fall.

The only thing that stops me from buying Taylor Wimpey today is that I bought rival FTSE 100 dividend income aristocrat Persimmon just a couple of weeks ago. That’s up 13.57% since then. Maybe the recovery is already underway.

The post I’d rather buy this FTSE 100 dividend stock than a buy-to-let appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

Harvey Jones holds shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Anybody who loves top dividend stocks will struggle to resist going on a buying spree at the moment. The FTSE 100 is packed full of them.

Some of the yields on offer are astonishing. Housebuilder Persimmon currently yields 17.9%. That’s the best on the FTSE 100 but mining giant Rio Tinto isn’t that far behind, with a yield of 12.87%.

Fund manager Abrdn yields 9.37%, insurer Phoenix Group Holdings yields 9.07%, and builder Taylor Wimpey yields 9.05%. Wow.

I’m buying dividend stocks today

There are plenty more where those came from. In fact, I can hardly remember a time when yields were so high. But can I trust them?

A yield is calculated by dividing a company’s dividend by its share price. So if the dividend is 5p and the share trades at £1, the yield is 5%. This means that if the share price halves, say, to 50p, the yield doubles to 10%. 

As this basic example shows, a high yield is often the sign of a company in trouble. It signals both an opportunity, and a threat.

If stock markets are down generally and my chosen dividend stock has got caught up in the wider malaise, then I’ll see that as an opportunity. Loads of stocks fits the bill right now, thanks to this year’s global political and economic turmoil. 

But I would also work through its reports, statements, and updates, to see whether there are problems specific to that company. In particular, I would look to see whether management can afford to continue paying its dividend. The easiest way of doing this is to check dividend cover. This is calculated by dividing shareholder payouts by company earnings, but it can also be found easily online. 

Ideally, it will be covered twice or more. This figure is often lower with utilities, where earnings are typically more reliable, allowing companies to hand more of them to shareholders. A healthy level of cover is no guarantee, but it’s a promising sign that the company will be able to continue paying me passive income in future.

I would also look at other company numbers, such as the size of its net debt and of course the reliability of its free cash flows, which fund shareholder payouts. Similarly, I would prioritise firms with a lengthy track record of making dividend payments. Especially those who maintained them through thick and thin (and the pandemic, too). 

FTSE 100 offers amazing yields

Any company that increases its dividends year after year would be high on my list, as this gives me a rising passive income. While past performance is no guide to the future, it does offer reassurance.

As a general rule, I would prefer a company with a lower dividend that looks more reliable, than a higher dividend that is likely to be cut. When a dividend is cut for being unaffordable, the company’s share price tends to bleed, too.

Naturally, a host of other factors will determine whether the dividend is sustainable. A strong balance sheet, loyal customer base, unique brand, or popular products can all help secure those all-important cash flows. 

While I’m thrilled by all the top FTSE 100 dividend stocks out there right now, I’m doing some careful sums before buying them.

The post Can we really trust today’s high-yielding dividend stocks? appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Harvey Jones holds shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m no longer 40 years old but if I was and had no retirement savings, I’d follow the same strategy as I do in my 50s, and invest in FTSE 100 stocks.

Although the first thing I would do is kick myself, for leaving it so long to take investing seriously. That’s because I have learned that the longer my money sits in the market, the more time it has to compound in value. That is particularly important when investing in the FTSE 100, as it is packed full of top dividend stocks paying mighty yields.

I’d pile into FTSE 100 stocks

Some of my favourite companies on the index haven’t delivered much share price growth over the last five years or so. Many have fallen sharply over the last 12 months. That doesn’t put me off, because they now look dirt cheap and their yields are huge. Many of my favourite FTSE 100 stocks yield between 5% and 8%. Some pay even more than that.

If I was 40, I would reinvest all my dividends straight back into my portfolio, again, exactly as I do today. My reinvested dividends would pick up more stock, which would pay more dividends, which I would reinvest to buy yet more stock.

This is a virtuous circle and even I started from scratch at 40, I would still expect to build a decent pot of money by the time I reached state pension age.

Let’s say my FTSE 100 shares delivered a total return of 7% a year, which is roughly the long-term average across the index. If I invested a lump sum of £10,000, that would grow to £62,139 by age 67 years. That’s a pretty decent return.

If I followed that up by investing £300 a month, which is £3,600 a year, I would end up with a thumping £349,050. Again, this assumes 7% a year growth.

I’d buy cheap value stocks

Here’s another thing I would do. I would increase the amount I invested each year, to keep up with inflation. Let’s say I increased that £300 monthly contribution by 3% a year. By the time I hit 67, I would have £446,624 in total. 

Of this, £290,069 would have been pure profit from compound growth. That’s an impressive two-thirds of my total portfolio.

I think now is a tempting time to start buying FTSE 100 stocks because the index is packed full of bargains. I can scarcely believe my eyes when I see dividend aristocrat Legal & General Group trading at 6.87 times earnings and yielding 7.94%. Or housebuilder Taylor Wimpey, whose valuation has tumbled to just 5.28 times earnings, while it yields 8.91% a year.

Mining giant Rio Tinto is currently valued at just 4.09 times earnings and yields a staggering 12.09%.

Of course, dividends are not guaranteed, and share prices can always fall. No stock is ever totally safe. That’s why I would invest in a balanced spread of FTSE 100 stocks, to spread my risk. I would also pay in as much as I could afford today, to ensure a comfortable retirement tomorrow. That would apply whether I was 30, 40, 50, or older.

The post No savings at 40? I’d buy FTSE 100 stocks at today’s dirt-cheap prices appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 shares are down sharply today as chancellor Kwasi Kwarteng’s mini-budget speech continues to rattle global markets. The index has fallen 1.11% to 6,940, at time of writing. That’s the lowest level of the year. It is now down 7.53% in 2022.

Sterling is in freefall as traders expect base rates to hit 5.8% next year. That’s a huge increase on today’s 2.25%, which is already the highest for 14 years.

FTSE 100 shares are falling today

There are even reports that the Bank of England may have to announce an immediate base rate hike to stop the pound’s rout. That could be as much as 2%. Panic is setting in and FTSE 100 shares are not immune.

I’ll leave others to discuss the politics of Kwarteng’s controversial budget. My focus is on the FTSE 100 and only one thing matters to me right now. Shares listed on London’s index are cheaper than they were just a few days ago.

I am building a portfolio of FTSE 100 shares for retirement and my strategy is simple. I buy when they look relatively cheap and hold them for the long term. And when I say long-term, I mean decades.

I believe the longer I invest, the better my chances of generating serious wealth from the stock market. As we have seen this year, shares are highly volatile. In the short term, nobody has any idea where prices will go.

Yet in the longer run, the trajectory has been upwards. Better still, FTSE 100 shares pay generous dividends. By reinvesting them into my portfolio to buy more stock, I can make money even if the market goes nowhere for years.

When I wrote about the FTSE 100 last week, the index was yielding an impressive 3.93% a year. After today’s dip, that has increased to an even juicier 4.14%. So already I’m getting 0.21% more income as a result of today’s drop. 

Some individual stocks on the lead index have fallen fast this morning. The housebuilding sector is selling off as investors assume that higher interest rates will drive up mortgage costs will make property even less affordable.

Taylor Wimpey is down 7.03%, at time of writing, with Persimmon down 6.07% and Berkeley Group Holdings falling 5.34%. Yet I still think this is a good sector to invest in. Property shortages should limit the chances of a full-blown house price crash.

These stocks offer amazing yields

The housebuilding sector is a happy hunting ground for dividend income. Taylor Wimpey now yields 8.95% and trades at just 5.73 times earnings. Persimmon yields an incredible 18.53% and is valued at a dirt-cheap 5.43 times earnings.

There are plenty more bargain FTSE 100 shares out there, as the market sells off through no fault of its own. Naturally, buying stocks today could be risky. The index could easily fall further tomorrow. That is a chance I am willing to take.

I accept that I will never buy at the absolute bottom of the market. Today’s low valuation is good enough for me. If FTSE 100 shares do fall further, I’ll simply buy more at the lower price. Then hold them for decades.

The post I’d buy FTSE 100 shares today as the index dips below 7,000 appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Much of this fall materialised in August, when the stock decreased from 128p to 108p across the month. It reported a big decline in net cash with its half-year results. This led to many investors abandoning it.

However, with a FTSE 100 constituent taking such a heavy beating, now may be the perfect time for me to grab shares at a bargain price. Let’s take a look. 

Considering the cash

The company’s net cash fell from £906.5m to £642.2m, a 26% decline in a year. Work-in-progress constructions were significantly delayed by prior covid-linked restrictions. Also, build cost inflation has increased to an estimated 9-10% this year. This led to Taylor missing typical cash inflows as construction deadlines weren’t met and operational expenses rose. Clearly this has turned investors away.   

Yet this didn’t hit the operating margin, which remained at £424m. Expanding operations in Spain have brought in an additional £18m profit as the total number of homes completed rose from 83 to 203. This partially offset the impact of domestic conditions. 

Estimates for net cash for the end of the year still fall to £600m. However, the company has opened 50 new property developments this period. Also, management will further increase land investment. While continued decreases in net cash may scare off investors, I think this is the right move for the firm. It’s clear the company is preparing to hit the ground running in FY23 as a Covid-driven aftermath retreats and housing prices stabilise.

Despite net cash raising red flags, I think management has its financials under control. The company has mitigated macroeconomic impacts and is gearing up for a growth-focused FY23. That’s why I think the shares will be a great buy for my portfolio — particularly after such a heavy fall this year. 

The industry perspective

While I have little concern over the builder’s net cash, a broader look at its position in the property sector does raise some worries. Nationwide economist Robert Gardner stated: “There are signs that the housing market is losing momentum.” 

Persimmon‘s share price has plummeted 50% across the last year. The company’s home completions fell 11% to 6,652. Its pre-tax profit fell from £480m to £439m. Market’s conditions have clearly created struggles for many industry leaders. 

Yet competitor Berkeley has only suffered a 21% fall over the last year. It’s one of the few homebuilders that actually increased pre-tax profits across FY21, rising 6% to £551m. This resulted from the sale of 3,760 homes, representing a 25% increase against the year previous. 

While not in the lead, it’s clear Taylor Wimpey has managed to mitigate industry conditions to a considerable extent with a 37% decline in share price. This is partially due to operational developments in Spain. Also, continued outlet development and land investment also seems to have kept some investors hopeful for the company’s future growth.

Indeed, I think net cash will begin to stabilise. With healthy prospects for FY23 I’ll be looking to add Taylor Wimpey shares to my portfolio.

The post I’m buying this battered FTSE 100 stock right now! appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

Hamish Cassidy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Income stocks are a great way for me to put my money to work. Not only do they provide a passive-income stream, but they also require minimal effort.

With inflation sitting at the near-10% mark in the UK for August, this means my stagnant cash is losing value every day. And as such, I’m on the lookout for some cheap income stocks that can help me protect my money.

Here are two I’m strongly considering.

Rio Tinto

First on my list is Rio Tinto (LSE: RIO). The stock has fallen by over 5% across the last year, with it also down by just over 1% in 2022. However, in the last month the Rio Tinto share price has jumped 3%.  

At its current price, the stock offers an attractive dividend yield of 10.8%. While inflation is predicted to peak potentially above 20%, this yield is currently above the UK figure. This is a great way for me to mitigate the possibility of my cash eroding.

Despite cutting its interim dividend to $2.67 per share, the firm’s total payout for the first half still equated to its second highest ever!

On top of this, the stock looks cheap. It trades on a price-to-earnings ratio of 5.3, comfortably below the ‘value’ benchmark of 10. This is also below the average of its FTSE 100 peers.  

With a focus on iron ore, what could pose an issue for the business is the falling demand from China. The country accounts for half of the world’s steel output, so with ongoing Covid struggles alongside a weakening economy, this could spell trouble for Rio Tinto.

However, with a positive long-term outlook for commodities, I think Rio Tinto shares would be a solid buy for me today.

Taylor Wimpey

Another stock I have my eye on is homebuilder Taylor Wimpey (LSE: TW). Unlike Rio Tinto, it’s been a dire 12 months for the stock, as its share price has fallen around 36%. This year alone, it’s down nearly 40%.

With its demise, Taylor Wimpey’s shares offer a meaty 8.5% dividend yield. This isn’t above the UK inflation rate, of course. But the passive-income stream it will create will be valuable to my portfolio in the months ahead.

It’s been a turbulent few years for homebuilders. After making solid recoveries following the pandemic as the housing market boomed, 2022 has seen them suffer as a bleak economic outlook has seen market sentiment plummet.

Despite this, Taylor Wimpey’s half-year results were strong. The business managed to grow its operating profit on top of the impressive 2021 it had. It also saw its operating margin rise from 19.3% to 20.4%.

The biggest challenge the business is set to face in the months ahead is rising material costs as inflation continues to spike. Supply chain issues may also hinder its operations. However, with these as short-term concerns, I’d strongly consider buying Taylor Wimpey shares today.

The post 2 cheap income stocks to help fight back against inflation! appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s no secret that inflation has been wreaking havoc across markets this year. With stagnant cash depreciating, I’m on the lookout for top dividend stocks that can go some way towards hedging me against rising rates. Here are two I’m strongly considering today.

Red hot rates

Before we delve into my picks, let’s start by taking a closer look at what’s been going on so far in 2022.

In the UK, inflation continues to reach new highs and July saw it in double-digits at 10.1%. In its latest update, the Bank of England explained that rates could peak at 13% this year. And more recently, investment bank Citi made the bold prediction inflation could rise to as high as 18% next year. Or as it stated, “entering the stratosphere”.

Citi pinned its forecast largely to gas prices as it revealed the UK’s energy price cap could reach nearly £6,000 come April 2023.

Taylor Wimpey

With this, I’m looking to put my money to work. And my first pick would be homebuilder Taylor Wimpey (LSE: TW). Looking at its share price over the last 12 months isn’t a pretty read as the stock has seen 37% shaved off its price.

However, with this fall comes a meaty 8% dividend yield. This isn’t inflation-beating, but this passive income stream could certainly come in handy in the months ahead.

Despite tough economic conditions, the firm recently released a strong set of half-year results. On the back of a strong set of comparators, it managed to slightly grow its operating profit. And for its full-year outlook, it expects operating profits to be at the “top end of the current market consensus range”.

The biggest issues the company faces are rising material costs and potential supply chain issues. But with these only as short-term concerns, I’d consider buying the stock today.

Abrdn

My second pick would be global investment company Abrdn (LSE: ABDN). Like Taylor Wimpey, the stock’s price has suffered so far in 2022. Over the last year, the Abrdn share price has slid nearly 44%.

It currently offers a whopping 9.8% dividend yield, which is incredibly attractive. And on top of this, it also looks cheap with a price-to-earnings ratio of 5.4.

Despite some subpar figures being reported in its latest update, I still see plenty of positives with Abrdn.

Firstly, it recently completed the initial phase of a £300m shareholder return programme via a £150m share buyback scheme. Its interim dividend of 7.3p is also in line with its dividend policy.

The firm also finds itself in a “strong capital position”, with £600m in regulatory surplus.

Its biggest challenge will be cash-strapped consumers shying away from making investments as further economic troubles loom. And this was highlighted through the dip in fee-based revenue.

Yet despite this, I’d still buy today. Its monumental dividend yield is a major pull for me. And I see real long-term opportunity in a strong FTSE 100 brand that’s taken a beating in recent times.

The post 2 top dividend stocks to help fight double-digit inflation! appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• How much second income could I make from £10k in the stock market?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Taylor Wimpey (LSE: TW) share price has suffered this year amid fears of a recession. However, some data seems to suggest strength in the housing market, and could serve as catalysts to spark a further rally.

Builds are looking up

Compared to pre-pandemic levels, Taylor Wimpey posted an excellent set of numbers for the first half of 2022 with results coming in above analysts’ consensus. This then sparked a 10% recovery in the share price.

With such solid numbers and positive guidance, it doesn’t seem like Taylor Wimpey is likely to lose momentum any time soon. Cancellations in absolute numbers are down, while customer interest remains high, and orders for the rest of the year are almost filled.

In fact, management is so confident about the company’s future that they’ve decided to increase the interim dividend by 12%, to 4.62p per share. This confidence was further reflected in a couple of high-ranking directors purchasing £50,000 worth of shares in August, so far.

Moreover, the company recently launched its new range of energy efficient homes. With the national EPC rating currently at D, I’m expecting these new homes with average EPC ratings of A or B to capture more market share.

Rough landing

Despite the upbeat outlook though, the wider macroeconomic data hasn’t quashed fears of a house market crash. As a result, the Taylor Wimpey share price recovery has stalled. This is a reflection of stalling house prices seen in the most recent RICS House Price Balance and Nationwide House Price Index.

Furthermore, mortgage approvals have been steadily falling according to the UK’s biggest mortgage lender, Lloyds. Along with this, mortgage repossessions saw an uptick in the first three months of the year.

To make matters worse, mortgage rates are expected to go higher with interest rates. This would affect the 2m households currently on variable mortgages, and another 1.8m households on fixed rate mortgages that expire next year.

Additionally, Taylor Wimpey faces trouble building more homes due to a nutrient neutrality issue. This is a problem regarding new developments exacerbating nutrient burdens on the soil in the area. The issue is expected to affect up to 120,000 homes across England. Nonetheless, CEO Jennie Daly is confident that the FTSE 100 firm’s large and geographically diverse land bank puts it in a good position to overcome this challenge.

Curb my optimism

Having said all that, I’m still a fan of Taylor Wimpey shares. Its balance sheet is solid, and it boasts quality earnings with high margins. Its dividend continues to see healthy increases too, with CFO Chris Carney stating that it would still be able to pay £250m worth of dividends even in its worst projected economic scenario.

But as much as I am positive about Taylor Wimpey’s numbers, I don’t think its share price will be rebounding into the green soon. I just don’t think the company has a unique enough selling point to outperform the wider market. Not to mention, there’s also a potential recession on the cards. Therefore, I’ll be putting Taylor Wimpey on my watchlist for the time being, and may open a position if its share price continues to dip, as I believe that its upside would be rather attractive.

The post Will the Taylor Wimpey share price rebound soon? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Taylor Wimpey (LSE: TW) share price has seen a 10% recovery since it bottomed in mid-July, although it’s still in the red. With that in mind, I could consider buying some of its shares before a stock market recovery gets underway.

Building momentum

The FTSE 100 housebuilder reported its half-year results recently, and I must admit that I was rather impressed. The increase in house prices has managed to offset inflation in build costs, leading to an increase in operating margin, and that sat well with investors as its share price saw a 5% increase.

Although several figures saw declines, it’s important to consider context. For instance, the lower level in completions is due to tougher comparisons from last year, which saw orders from Q4 2020 pushed into H1 2021. Additionally, the fall in EPS is attributed to the increase in the pre-exceptional tax rate from 18.3% to 22.1%, as a result of the introduction of the property developer tax. Finally, the decline in free cash flow was down to further investments in land and current projects.

So, despite the drop on the top and bottom lines, Taylor Wimpey is still growing healthily. The board even revised its outlook upwards for the full year. They’re now guiding for FY22 results to be around the top end of analysts’ consensus.

Strong pipeline

Even though management’s guidance is upbeat, it becomes a bit of a head-scratcher when taking the recent house price data into consideration. For example, the latest RICS house price balance indicates that house owners are expecting prices to decline over the next 12 months.

These expectations go hand in hand with the narrative that house affordability will dwindle as the Bank of England increases interest rates, thus driving mortgage rates higher. The effects of this can already be seen in the most recent Nationwide house price index, as house prices are beginning to stall. With inflation expected to only peak at 13%, the Bank still has a long way to go in its rate-hiking process.

Nonetheless, the Taylor Wimpey board still struck an optimistic tone in their H1 earnings call, and I can see why. For one, customer interest remains at high levels. Moreover, the property developer is already 92% forward sold for FY22, and has opened orders for Q1 2023. More importantly, cancellations in absolute numbers are down 9% year over year (yoy), and down 29% from 2019.

Solid foundations

Taylor Wimpey has got an excellent balance sheet. The company has a stellar debt-to-equity ratio of 2%, with £4.28bn in cash and only £87m of debt. Not to mention, the firm saw its profit margins increase by 2.5% (yoy). To complement this, its massive short-term land bank of ~88,000 plots leaves its business well positioned and flexible.

Therefore, despite macroeconomic indicators painting a gloomy picture, Taylor Wimpey looks to be heading in the opposite direction for now. But even with a decent price-to-earnings (P/E) ratio of seven, I’m cautious about buying Taylor Wimpey shares. The possibility of the UK staying in a recession for a prolonged period could send house prices and its share price lower. As such, I’ll be putting Taylor Wimpey on my watchlist for the time being, and may consider buying once housing data improves.

The post Should I snap up Taylor Wimpey shares at £1.30? appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.