I love FTSE 100 dividend shares, but do I buy this FTSE 250 loser?
Since the global financial crisis of 2007/09, US tech and growth stocks have produced returns that other stock markets can only envy. In particular, ‘boring, old-economy’ value shares have seriously underperformed faster-growing rivals. However, that established trend has abruptly reversed over the past year, with the FTSE 100 surging in front of the S&P 500 index.
By how much has the Footsie beaten its American counterpart? Let’s find out…
Fabulous FTSE
Over the past 12 months, the FTSE 100 Total Return Index — which includes cash dividends — has surged by 24.3%. That’s one of the biggest gains I can recall in nearly four decades of investing in stocks and shares.
Meanwhile, the S&P 500 is up 15.5% in the past year, but this gain is in US dollars. In sterling (British pounds) terms, the index has returned a mere 4.1% — more than 20 percentage points behind our home-grown hero.
This is good news for my family portfolio, which is increasingly weighted towards cheap UK shares and with reduced exposure to expensive US stocks. Right now, our holdings include at least 25 FTSE 350 shares that we bought for their low valuations and/or high dividend yields.
Delicious dividends
Reviewing the list of highest-yielding FTSE 100 dividend shares, I see that my family portfolio owns four of the top six stocks offering hefty cash returns to shareholders. All four happen to be financial firms — asset managers and/or insurers — so this is a highly concentrated sector of our asset mix.
Hence, perhaps my wife and I should branch out by buying dividend dynamos in very different market sectors? One candidate that immediately springs to mind is FTSE 250 firm Taylor Wimpey (LSE: TW). Over one year, this stock has lost 10.1%, while it is has dived 33.1% over five years (excluding dividends).
As I write, Taylor Wimpey shares stand at 108.35p, valuing this well-known housebuilder at just over £3.8bn. This makes it one of the largest members of the mid-cap index, but too small for the blue-chip Footsie.
At present, this share offers a juicy dividend yield of 8.6% a year, with the anticipated final dividend of 4.66p going ex-dividend on 26 March for payment around 8 May. Therefore, by buying this income share on or before 25 March, I would get this cash payout.
Alas, there’s a catch with this market-beating cash stream. Currently, Taylor Wimpey’s profits are not enough to cover these ongoing payouts, so it has to dip into its cash reserves (of around £350m) to meet this outflow. In City jargon, this dividend yield is not fully covered and so may be at risk in the future.
Of course, much depends on the performance of the UK housing market in 2026 and beyond. Weaker house-price inflation, higher costs, and lower margins are already an issue for Taylor Wimpey. But if interest rates fall, then this would be a bonus for the business.
Personally, I’d buy this stock today, but my wife is more cautious. As investment legend the late Charlie Munger once remarked, “The big money is not in the buying or selling, but in the waiting”. Thus, I may have to sit tight until 5 March, when Taylor Wimpey releases its full-year results for 2025. Watch this space!
The post I love FTSE 100 dividend shares, but do I buy this FTSE 250 loser? appeared first on The Motley Fool UK.
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The Motley Fool UK has no position in any of the shares mentioned. Cliff D’Arcy 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.
