Until a few days ago, just looking at the Taylor Wimpey (LSE: TW) share price was enough to put a smile on my face. I bought the FTSE 100 housebuilder twice in September and again in November, and the shares were up 20% in short order.
Taylor Wimpey shares looked like a perfect recovery play. Its share price had taken a beating but it was still building houses and making money. The balance sheet looked solid, the dividend sustainable.
I wanted to buy it while interest rates were still high and house prices were under pressure. This allowed me to pick it up at a dirt-cheap valuation of around five or six times earnings.
Bargain FTSE 100 share
I love buying good companies on low valuations. As well as offering greater scope for a recovery, it potentially limits the negatives if things don’t go to plan.
After buying Taylor Wimpey shares and pocketing my first dividend, I was ready for my excitement in 2024. I thought the Bank of England might deliver four or five base rate cuts this year. This would drive mortgage rates lower, boost buyer sentiment and revive housing demand.
Then on 28 February, Taylor Wimpey spoiled the fun by announcing that 2023 profits almost halved. I had expected that, and assumed the market did too. I didn’t expect that it would be building fewer homes this year though.
In 2022, property completions totalled 14,154. That fell to 10,848 in 2023 and will now dip to between 9,500 and 10,000 in 2024. Fewer completions mean lower revenues and less profit.
As we all know, the UK desperately needs more properties to house our growing population, but Taylor Wimpey is struggling to step up.
This stock will recover
The stock is down 6.12% over the last month (although it’s up 16.47% over the year). I’m still ahead on my original purchases, but by a more modest 12%. The shares no longer bring an automatic smile to my face, but I’m not frowning either. I know better than to fret over short-term share price volatility.
I’m planning to hold the stock for a minimum of five or 10 years, and if all goes well, a lot longer than that. Over such a timescale, the recent sell-off is neither here nor there. Obviously, there’s no way I’m selling. The question is, should I take advantage of the slippage and buy more?
I still think the UK housing market and Taylor Wimpey are facing a brighter future. It’s just been delayed slightly. The yield still looks generous at 6.9%. However, the shares aren’t as cheap as when I bought them, trading at 14.11 times earnings.
Despite the drop, I think I timed my Taylor Wimpey purchases well. If I didn’t already own the shares, I would take advantage of the current dip today. But since this is already one of my largest portfolio holdings, I will sit tight and look forward to reinvesting my next dividend of 4.79p per share, due on May 10. I reckon my smile could be back by the summer.
This post was originally published on Motley Fool
