For most British adults, the bulk of their wealth hasn’t come from investing in FTSE 100 shares, bonds or cryptocurrencies. Here in the UK, we’re absolutely obsessed with the price of one particular asset class: domestic property. And since the 1980s, soaring (and sometimes crashing) house prices have been a top topic of dinner-party conversation.
Of course, not everyone can afford to own a home. Indeed, the rate of UK home ownership declined from almost 71% in 2003 to below 64% in 2018. Meanwhile, the country is currently in the midst of the third great property boom since the 1980s. But if I don’t have enough ready cash at hand to buy property, where else could I benefit from higher house prices? For me, the answer lies in the FTSE 100 index.
A booming FTSE 100 property company
To my surprise, I realised today that I’ve not written about Taylor Wimpey (LSE: TW) at all during 2020-22. You may be familiar with Taylor Wimpey as one of the UK’s leading London-listed homebuilders. This High Wycombe-based property developer was created by combining rivals Taylor Woodrow and George Wimpey in July 2007. That proved to be unfortunate timing, as the UK property market promptly collapsed during the global financial crisis of 2007-09.
Today, with house prices at all-time highs, Taylor Wimpey is making hay while the sun shines. After rebounding from 2020’s Covid-19 crisis, the company’s revenue soared to nearly £4.3bn in 2021, versus under £2.8bn in 2020. This sent pre-tax profit surging close to £680m, versus below £265m in 2020. And yet the Taylor Wimpey share price has been falling for the past year.
I see this share as too cheap today
As I write, the Taylor Wimpey share price hovers around 122.4p. This values this FTSE 100 firm at under £4.4bn, a little above 2021’s total revenue. At this price, the shares trade on a modest price-to-earnings ratio around eight and an earnings yield of 12.4%. What’s more, Taylor Wimpey shares offer a dividend yield of over 7% a year, based on 2021’s dividend of 8.58p a share. This is roughly 1.75 times the wider FTSE 100’s cash yield of around 4% a year.
This suggests that this FTSE 100 share might offer deep value to me as an income-seeking value investor. And yet here’s how the Taylor Wimpey share price has performed over six timescales:
| Five days | -5.1% |
| One month | -7.2% |
| Year to date | -30.2% |
| Six months | -22.8% |
| One year | -30.9% |
| Five years | -37.6% |
As you can see, the TW share price has fallen over all periods ranging from five days to five years. What’s more, it currently lies more than a third (-33.8%) below its 52-week high of 185.02p, hit on 1 September 2021. I don’t own this share today, but I’d eagerly buy it based on these attractive fundamentals.
That said, housebuilding is a highly cyclical business that goes from feast to famine in long cycles. Eventually, another housing crash is inevitable — and Taylor Wimpey obliterated its dividends in 1994 and 2010. Also, I worry about the pandemic, the Russia/Ukraine war, recession risk, inflation and interest rates, and slowing Chinese growth. Yet despite all these risks, I’d still buy and hold Taylor Wimpey today!