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Holding Taylor Wimpey (LSE: TW.) shares has been a horrible experience in recent years, but at least investors got plenty of dividend income to compensate. At times, the FTSE 250 housebuilder yielded as much as 10%, offering a reason to hang on and wait for it to recover.
Not any longer. The dividend has been hacked back. So is it time to cut my losses and find a more rewarding home for my money?
Three years ago, I thought Taylor Wimpey looked compelling. It was a strong and profitable builder, trading on a low price-to-earnings ratio of around five or six. Better still, there was the sky-high yield. I know we need to tread cautiously around yields of 8% or 9% or higher, but this one looked sustainable. Or so I thought.
Stormy weather for this sector
The housebuilder was making serious money, too. In 2023, it generated £473.8m of profit before tax. Alas, it wasn’t to continue.
The housing market has been under siege. Higher mortgage rates hammered affordability just as the cost-of-living crisis squeezed household budgets. First-time buyers lost the support of Help to Buy in 2023, while house prices stagnated and mortgage rates remained high.
Taylor Wimpey has also faced soaring construction costs, with building materials becoming more expensive. The hike in employer’s National Insurance added to the squeeze.
Then there’s the cladding scandal. Since the Grenfell tragedy, Taylor Wimpey has set aside £544m for cladding and fire-safety remediation.
In 2025, revenue actually rose 13% to £3.84bn while adjusted operating profit edged up 1% to £421m. But that was before £243.8m of exceptional costs, mostly for cladding.
Eventually, the board had to bow to the inevitable. First-half results (31 July) showed adjusted operating profit falling 19.4% to £129.7m. The interim dividend was slashed from 4.67p to just 1.2p, a 74.3% cut. Is this the final straw?
Recovery forever delayed
The Taylor Wimpey share price is down 50% over five years and 15% over the last year.
Don’t be fooled by websites quoting a 9.4% dividend yield. That’s the trailing yield, based on payments already made. Forward income is much lower at 2.95%, although forecasts suggest it could hit 4.4% in 2027.
There’s still a housing shortage. Taylor Wimpey has a huge land bank and says planning momentum is improving. Its medium-term target is 14,000 UK completions and an operating margin of 16% to 18%. Planning reform may help. But will the recovery arrive quickly enough? With mortgage rates and inflation threatening to stay higher for longer, I can’t see a wave of buyers suddenly appearing.
I’m a long-term investor who likes to give companies time to recover. With dividends reinvested, I’m only down around 18%, so my position could be worse.
But with the shares at 2013 levels, Taylor Wimpey looks like a value trap rather than an obvious bargain. I don’t think it’s worth considering today unless someone is feeling brave, optimistic or unhinged. Selling is a tougher call. I’ll put off the decision until 8 October, when the shares go ex-dividend. But I can see plenty of FTSE 100 and FTSE 250 shares with better prospects today, and I’m tempted to abandon this one.
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Harvey Jones owns shares in Taylor Wimpey.
This story originally appeared on Motley Fool
