Down 30% in 3 months, is Taylor Wimpey’s share price too cheap to ignore?

Since September 19, housebuilder Taylor Wimpey (LSE: TW) has seen its share price fall by more than 30%.

Why are stocks down? Another obvious explanation would be that FTSE 100 The company’s trading disappointed investors. But this has not happened yet.

Trading as expected

Taylor Wimpey’s latest trading update for 2024 confirmed last year’s profit should be “in accordance with previous guidance”. And 2025 seems to be off to a good start again. Taylor Wimpey’s order book stood at £1,995m at the end of December, 12.5% ​​higher than the £1,772m reported for the end of 2023.

The company expects to report an increase in completions this year – although weak prices in the South of England mean the average house price on the order book is 0.5% lower than last year.

This may be one reason for the recent weakness, but this update was only released on January 16, 2025. It does not explain last year’s decline.

Market storms?

My guess is that investors were hoping that the government would inject some kind of money to boost housing activity in the autumn Budget. Investors can remember that Help to Buy has been turbo-charging house prices for several years. As it happens, the promise we have received from the government so far is that it will try to dismantle the planning system.

Another potential problem is that interest rates are not falling as quickly as expected. This has a direct impact on mortgage rates and affordability. That raises the risk of further pressure on house prices.

Is an 8% dividend yield safe?

I think this is a good example of an old stock market adage “buy rumours, sell news”.

Shares in Taylor Wimpey and other housebuilders did well ahead of the October Budget. But when the real news came out (there wasn’t any), investors took profits. The sale left Taylor Wimpey shares trading below their June 2024 book value of 125p. That’s a traditional mark of value for home builders.

I am also tempted by the 8% weather profit margin. However, I am a little concerned that the forecast payout of 9.4p is not fully covered by the expected 2024 earnings of 8.2p.

Taylor Wimpey ended last year with a net profit of £565m and is likely to be able to retain dividends. However, the management will not want to do this. It may want to retain cash so that it can expand its construction rate if market conditions improve.

Plus, CEO Jennie Daly already has a get-out-of-jail-free card for budget cuts. His previous guidance on dividends meant the payout could drop to a minimum of 7.1p per share, if needed. That would give the stock an average yield of 6.1%.

My decision

Right now, I’m on the phone about Taylor Wimpey. I think there is potential for the stock to be attractively priced. But I don’t think it’s really cheap enough to ignore. I’m also a little worried about budget security.

For these reasons, I will wait until the company’s results are published in February before reconsidering the situation.