UK investing: why I think the Taylor Wimpey share price is a buy

The Taylor Wimpey (LSE: TW) share price used to be a UK dividend champion. Before the pandemic, the stock was on track to yield 8% for 2020. That projection put it in the ranks of the top income stocks on the London market. 

However, management had to revisit the firm’s dividend plans last year. When the country was first plunged into lockdown in March 2020, Taylor acted quickly to reduce unnecessary cash outflows. 

Luckily, the firm managed to avoid the worst of the pandemic. According to its latest trading update, the company now plans to resume dividends in 2021, putting this UK investing champion back on track to become an income star. 

The outlook for the Taylor Wimpey share price 

Taylor managed to avoid the worst of the pandemic, but the group still suffered. In 2020, total UK home completions at the group, including joint ventures, fell by 39% to 9,609 from 15,719 the year before. Despite this decline, the organisation ended 2020 on a high note. It reported an order book of £2.7bn at the end of the year, representing 10,685 homes, up 23% from the same date the year before. 

Following this performance, management is now expecting to resume the company’s regular dividend in 2021. The business has supplemented its regular distribution with a special dividend based on annual profitability in the past. This was eliminated last year, but it will be reviewed towards the end of 2021 with the aim of making a payout in 2022 based on 2021 profit. 

Of course, this doesn’t guarantee the Taylor Wimpey share price will offer a special dividend. The UK housing market is shrouded in uncertainty right now. After a stellar performance in 2020, mainly thanks to the stamp duty holiday, many analysts expect the market to settle in 2021, and prices could even fall.

Nonetheless, I think Taylor might be able to navigate market uncertainty quite well. The group targets the more affordable end of the housing market. Its overall average selling price in 2020 was £288,000, which implies the group’s primary market is first-time buyers. This sector is still supported by multiple government housing initiatives, such as the Help to Buy scheme.

Unfortunately, this does not mean that the group will be entirely immune to housing market pressures. Falling house prices may have a significant impact on consumer confidence. That would hit every section of the housing market. 

UK investing champion

Despite the risks outlined above, I think the outlook for the Taylor Wimpey share price is bright. The UK housing market remains structurally undersupplied. The pandemic hasn’t changed that. As such, it seems likely the group will continue to find buyers for its properties. 

With a strong track record of returning excess profits to investors via dividends, I think the business may return to this strategy when it can. That doesn’t mean a high dividend payout is guaranteed, but it does indicate that this company has the potential to be an attractive income investment. 

Overall, I would buy this UK investing champion based on its income and growth potential. The Taylor Wimpey share price has had a rough 2020, but based on the UK housing market outlook, I think the business can benefit from growth tailwinds in the long term.