Can Taylor Wimpey rocket like the IAG share price?

The share price of IAG — or International Consolidated Airlines Group (LSE: IAG) as it should be called — doubled last year, making it the FTSE 100‘s standout performer.

Shares in the British Airways owner soared as global travel rebounded post-pandemic. Sadly, I don’t hold IAG, so could only watch from the sidelines.

At the same time, my stake in FTSE 100 housebuilder Taylor Wimpey (LSE: TW) tumbled 25%. Rising interest rates and a sluggish housing market were the culprits here. Sadly, I do own Taylor Wimpey.

It’s not uncommon for one year’s winners to become next year’s losers — and vice versa. So, could their fortunes reverse in 2025?

Has the IAG share price hit a ceiling?

IAG benefitted from pent-up travel demand, with passengers keen to fly and happy to pay more for the privilege fares. Yet the scars of Covid remain. Airlines seem perpetually vulnerable to global challenges, including wars, climate change, recessions and even volcanoes.

I think IAG shares could still climb higher. They look cheap, with a price-to-earnings (P/E) ratio of just 7.2. That’s less than half the FTSE 100 average.

The board plans to modernise fleets, expand long-haul routes and enhance the customer experience, all of which could boost profitability.

But those ambitions come with costs and IAG already has net debt exceeding €6bn. Budget airlines also pose stiff competition. Do passengers really want to pay extra for better service?

Falling fuel prices helped IAG last year, but today’s rising oil price could squeeze margins if it continues. Inflation and higher interest rates may also discourage travel. While the dividend is back, I think the real excitement around IAG has passed.

For a while last year, my Taylor Wimpey shares were flying. Better still, I was getting a fantastic 7% yield. Then things went south.

Inflation and interest rate hikes struck have nudged up mortgage rates and cooled (but not killed) the property market.

The Taylor Wimpey share price has dropped another 10% in the last week as rising UK bond yields signal economic trouble.

Taylor Wimpey has a stunning yield

The company’s latest trading update reflected these challenges, noting a drop in sales and persistent uncertainties. Still, I see reasons for optimism.

The UK’s chronic housing shortage isn’t going away. Taylor Wimpey boasts a strong land bank and a solid balance sheet. Its P/E ratio of 10.94 might not be as low as IAG’s, but it still looks like a bargain to me.

Even better, the dividend yield now stands at a staggering 8.58%. As far as I can tell, the payout is secure. There’s no chance I’m selling my shares.

The 16 analysts following Taylor Wimpey predict a median share price increase of over 42% in the next year, which, combined with the yield, suggests a potential total return of around 50%. Not quite IAG levels but still pretty handsome.

Personally, I think that might take longer than a year to play out, but the potential is there.

Last year, I wish I’d owned IAG. Today, I’m backing Taylor Wimpey. While I wait for the recovery, I’m happy collecting and reinvesting its bumper dividend.

The post Can Taylor Wimpey rocket like the IAG share price? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Taylor Wimpey Plc. 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.