Taylor Wimpey has a 9.2% dividend yield, but its share price is down 21%, so should I buy the stock?

The Taylor Wimpey (LSE:TW.) share price has slumped 21% in the last 12 months, pushing its dividend yield to an impressive 9.2%. As such, the UK homebuilder now offers one of the highest payouts in the entire FTSE 250.

But is this a bargain-buying opportunity for income investors, or is it a trap waiting to lure them astray?

What’s going on with Taylor Wimpey?

Despite the government laying out some aggressive homebuilding targets and slashing the red tape surrounding planning permission, hosuebuilders like Taylor Wimpey haven’t managed to capitalise on this tailwind.

Even with supportive government policies, the company has struggled to navigate courtesy to continued sluggish demand. That may sound odd given the well-documented housing shortage in Britain. But with inflation gobbling up household budgets, and higher interest rates sending mortgage rates flying, home affordability continues to be a major challenge.

Combine this headwind with the rise in raw material and labour costs, and the result is a shrinking bottom line. In fact, across the first six months of 2025, operating profits were down by 11.7% year on year.

Consequently, the group’s interim dividends have actually already been cut, with analysts projecting that the full-year dividend per share (DPS) will land around 9.17p. For reference, Taylor Wimpey’s DPS was 9.46p in 2024, which was also lower compared to 2023’s 9.58p.

With that in mind, it’s not surprising that Taylor Wimpey shares have taken a bit of a tumble.

Still an income opportunity?

Even with full-year dividends expected to be lower, the stock’s dividend yield remains above 9%, based on current analyst expectations.

So is this stock still worth considering? Following a recent trading update, there is some room for bullish optimism.

It seems that the government’s planning reforms have started to generate some positive progress. Taylor Wimpey has recently secured some more planning successes, paving the way for an acceleration of its short-term land bank build-out.

Considering the company has 75,000 plots up its sleeve, that’s an encouraging sign, as is the recent drop in mortgage rates, helping on the home affordability side of the equation. Providing these trends continue, we could be near the start of a wider property sector rebound.

That certainly seems to be the opinion of several institutional analysts who collectively have placed a 130p average share price target on Taylor Wimpey shares. Assuming this forecast is accurate, not only do investors have the chance to lock in a 9% dividend yield, but also earn a near 30% capital gain over the next 12 months as well.

The bottom line

An investment in Taylor Wimpey right now seems to be an investment in the wider UK housing market. Continued falls in mortgage rates combined with further planning permission approvals, bode well for this business and its dividend yield.

However, stubborn inflation remains a challenge not just because of mortgages but also raw material costs as well. And with a lot of uncertainty surrounding the timing of a real estate recovery, Taylor Wimpey’s dividend is far from risk-free.

Personally, I want to see more recovery progress before I consider buying any shares today. Instead, I’m looking elsewhere for attractive high-yield opportunities.

The post Taylor Wimpey has a 9.2% dividend yield, but its share price is down 21%, so should I buy the stock? appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. 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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