9.9% yield! Here’s the Taylor Wimpey dividend forecast to 2023

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The Taylor Wimpey (LSE: TW) share price has sunk 45% in 2022. Based on its dividend forecast for this year, its shares now carry a 9.4% dividend yield.

This is more than double than the FTSE 100 forward average of 4%. And things get even better for 2023. For then the dividend yield marches to 9.9%.

I already own Taylor Wimpey shares in my portfolio. Should I buy more on the back of its exceptional dividend estimates?

Dividend growth

Like many UK shares, Taylor Wimpey axed shareholder payouts for 2019 following the onset of Covid-19. However, strong housing market conditions enabled it to restart its dividend policy straight away.

In 2020, the business paid a full-year dividend of 4.14p per share. And last year it supercharged the payout to 8.28p.

City analysts expect the yearly shareholder reward to keep rising too. Payouts of 9.1p and 9.52p per share are predicted for 2022 and 2023 respectively.

Based on dividend cover I think there’s a good chance of Taylor Wimpey meeting these forecasts as well. Anticipated payouts are covered 2.1 times by predicted earnings this year. However, coverage weakens to 1.8 times for 2023.

A reading of two and above gives a decent margin of safety for investors.

Growing risks

That being said, I wouldn’t bet the house (so to speak) on Taylor Wimpey meeting dividend forecasts for next year.

Home prices rose 9.5% on an annual basis last month, according to Nationwide. But signs of turbulence are creeping into the market. Average house values actually flatlined month on month in September, at £272,259.

On the one hand, a shortage of available homes could keep prices moving higher. But then the number of mortgage deals being pulled from the market is accelerating.

There’s also the potential for colossal interest rate hikes as inflation soars and political uncertainty persists. Economists currently expect the Bank of England benchmark to surge above 5% in 2023, more than double current levels of 2.25%.

The verdict

I think the long-term outlook for the UK housebuilding sector remains bright. Home ownership is a vote winner and so government support like the Deposit Unlock scheme should remain in place.

Fierce competition among mortgage lenders is also helping first-time buyers get their foot on the ladder. Then there’s the simple fact that Britain’s population is growing and demand for accommodation is increasing.

Meanwhile, plans to boost homebuilding to meet demand remain wholly inadequate. It’s a problem that goes back decades. And the government’s recent decision to ditch construction targets doesn’t help.

However, growing uncertainty in the short-to-medium term is discouraging me from buying more Taylor Wimpey shares.

The business aims to pay at least £250m worth of dividends each year. But a possible housing crash could put paid to these plans. Economist Simon French of Panmure Gordon, for example, has tipped a 14% fall in home prices over the next three years.

Until the housing market outlook improves I won’t be adding more Taylor Wimpey shares to my portfolio.

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Royston Wild has positions in Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.