Is it time to pile into Taylor Wimpey shares?

Taylor Wimpey (LSE: TW) shares have lost around 20% of their value since the beginning of the year. Investor sentiment towards the homebuilder slumped when the UK housing market was put into cold storage. 

However, now lockdown restrictions are being lifted, the housing market is starting to wake up again. This should be good news for Taylor Wimpey shares in the near term. 

Taylor Wimpey shares

After lockdown restrictions were lifted at the beginning of June, the company announced it had seen a jump in demand. The homebuilder said it had orders for 11,228 homes in the 22 weeks to the end of May. Thay’s up from 10,557 homes worth £2.5bn for the same period last year.

That said, the coronavirus lockdown means the company has only been able to build 2,455 homes this year, down around 40% from last year’s total. While some restrictions remain, and activity is likely to remain below 2019 levels for some time, this is a positive development.

This suggests its bottom line might take a hit in the short term. Nonetheless, the outlook for Taylor Wimpey shares continues to appear positive. The UK housing market remains structurally undersupplied and the slowdown in construction because of the lockdown has not helped the situation. 

Management is also looking to capitalise on the situation by acquiring undervalued land. Last month, the group raised £500m from shareholders to spend on land. It believes coronavirus has pushed down prices, thinned the competition, and created opportunities. While this new share issue has weighed on Taylor Wimpey shares in the near term, over the long run, this expansion should help drive earnings growth. 

Growth opportunity 

Considering all the above, now may be a good time to snap up Taylor Wimpey shares as a long-term growth investment. Demand for new homes remains high. Further, record-low interest rates should only help fuel the growth of the housing market over the coming years. Other factors, such as the government’s first-time buyer initiatives, should continue to help support the sector. 

These tailwinds suggest the company may produce high total returns in the years ahead.

Historically, Taylor Wimpey shares have offered a dividend yield of as much as 10% as the company has distributed excess profits to investors. When the housing market returns to a more normal level of activity, the company may resume this cash distribution schedule. This would make it one of the best dividend stocks on the London market, and a highly attractive prospect for income investors. 

On top of this income potential, Taylor Wimpey shares have the potential for substantial capital gains as well. A booming housing market should allow the business to increase selling prices, which would help improve its bottom line. As earnings expand, the share price should follow suit. 

Therefore, it looks as if now could be an excellent time to buy the stock as part of a diversified portfolio.