Enthusiasm for Britainâs housebuilders remains soggy as investors fear the impact of Bank of England (BoE) rate rises. Taylor Wimpeyâs (LSE: TW) share price, for example, has slumped 12% since the beginning of the year, to 146p. This means on a 12-month basis, the FTSE 100 stock is down 17%. Itâs my opinion that share pickers are being far too cautious on housing stocks like this.
I have no intention of selling my own Taylor Wimpey shares. As BoE data shows today, the UK homes market remains extremely robust. Some 74,000 mortgage approvals for property purchase were signed off in January. That remained some way above the 12-month pre-pandemic average of 66,700 monthly approvals up to February 2020.
Taylor Wimpeyâs own comments in late January also underlined the resilience of the housing industry. It then reported that âwe continue to see strong demand for our homesâ and that its order book was already 47% sold for 2022.
Encouragingly, the companyâs so confident about its profits outlook that it plans to launch a buyback programme to return excess cash to shareholders.
Cash machine
Taylor Wimpeyâs excellent cash generation is what encouraged me to first invest (along with FTSE 100 counterpart Barratt). Its rich balance sheet allowed the business to pay some mouth-watering dividends.
So Iâm pleased that despite the problem of rising building costs, Taylor Wimpey remains an impressive cash-creating machine. Net cash surged to a forecast-beating ÂŁ837m as of December, up from ÂŁ719.4m a year earlier.
Itâs no surprise to me that City brokers predict more big dividends will be coming down the line then. Last yearâs predicted 8.55p per share reward is anticipated to rise to 9.47p in 2022. This leads to a mighty 6.5% dividend yield, one that smashes the broader FTSE 100 average of 3.6%.
The good news doesnât end here either. A total dividend of 9.88p per share is anticipated for 2023 too, creating a handsome 6.8% yield.
A FTSE 100 stock Iâd buy more of
Recent market volatility means many UK shares carry big dividend yields which look pretty flaky. However, I think the predicted dividends at Taylor Wimpey look pretty secure. On top of that strong balance sheet, anticipated payouts for the next two years are covered 2 times over by expected earnings. A reading of 2 times and above is regarded as the benchmark for investors to be confident in dividend projections.
Those City analysts also reckon annual earnings will rise 8% in both 2022 and 2023. Consequently, Taylor Wimpey also trades on a rock-bottom forward price-to-earnings (P/E) ratio of 7.7 times.
Like any UK share, Taylor Wimpey isnât without risk. Future BoE rate rises could hit demand for homes, and rising raw materials costs pose another danger to profits. However, these are threats I think are reflected in that low earnings ratio several times over.
At current prices Iâm thinking of buying more of the FTSE 100 business.