9% yield and P/E of just 12! Is this the best value stock on the FTSE today?

I’ve been scouring the FTSE to find the best value stock I can, and was surprised to discover I already hold it.

Although, maybe not that surprised. I’ve made a habit of buying top FTSE 100 and FTSE 250 companies that have had a poor recent run and look like bargains as a result.

One way to judge whether a company offers good value is to check its price-to-earnings ratio. If it’s below 15, I’m interested.

This stock ticks that box, even if it’s not dirt cheap, with a P/E of just over 12. There are cheaper shares in my portfolio, such as troubled trainer retailer JD Sports Fashion, which has a P/E of around 7.7. But this company absolutely smashes it on my second value metric, the dividend yield.

Taylor Wimpey shares look good to me

The company in question is Taylor Wimpey (LSE: TW.), and it currently yields a magnificent 9.1%. Over the past decade, it’s increased the dividend at a compound annual growth rate of 17.82%, which is remarkable. Lately though, dividend growth has slowed, as my table shows.

In 2021, the payout more than doubled, but it edged up just 1.91% in 2023 and was cut by 1.25% last year. That’s not ideal, but it’s understandable. Shareholders are being handsomely rewarded already, and a bigger increase would risk overstretching the business. The company aims to share roughly 7.5% of its capital value with investors each year, but no dividend is guaranteed.

The slowdown reflects tough trading conditions. Housebuilders have faced rising interest rates, higher construction costs, and stretched affordability. That’s not going to change quickly.

Building through the cycle

Taylor Wimpey’s latest results, published on 1 October, were solid enough. The board expects 10,400 to 10,800 completions this year and an operating profit of £424m, slightly up from £416.2m in 2024. Its total order book was flat at £2.12bn.

At today’s price of 104.6p, the stock trades at roughly half the level it did a decade ago. It’s fallen 33% in the past year, plunging into the FTSE 250 as a result.

Lower interest rates would help the housing market recover. Falling interest rates could make high-yield dividend stocks look more attractive again compared with cash and bonds. That said, with the Bank of England nervous about inflation, interest rate cuts may take time.

FTSE 250 stock to watch

Consensus forecasts suggest the shares could rise a massive 30% in the next year, which would be great if it happens. The forecast yield is 8.8%, which would lift the total return towards 40%.

With a 9% yield, modest P/E of 12, and signs that sentiment might be improving, I think Taylor Wimpey is worth considering for long-term investors. If markets fall, as some reckon, it might look even better value.

The FTSE 100 has broken a string of record highs lately but there’s plenty of value for investors willing to look. I know I’ll keep hunting for bargains. And if markets crash as some predict, then I will consider filling my boots.

The post 9% yield and P/E of just 12! Is this the best value stock on the FTSE today? appeared first on The Motley Fool UK.

More reading

• 3 UK shares that could surge in 2026 if the Bank of England cuts rates
• Passive income alert: this high-yielding FTSE 250 stock just fell 4.6% in a day!
• Prediction: analysts say the Taylor Wimpey share price will climb 31% in a year! Really?
• 3 money-losing mistakes that novice dividend stock investors often make
• Yielding 9%, are Taylor Wimpey shares a dream passive income investment?

Harvey Jones has positions in JD Sports Fashion and 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.

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